Superannuation
Non-concessional contribution
A non-concessional contribution is a super contribution made from after-tax money, for which no deduction is claimed, and it is limited by an annual cap.
A non-concessional contribution is money that a person puts into super from income that has already been taxed, and for which they do not claim a deduction. Examples include savings paid into a fund, an inheritance or the proceeds of selling an asset. Because tax has already been paid on the money, the fund does not generally tax these contributions again when they go in, and later withdrawals may be tax-free in the right circumstances.
There is an annual cap on non-concessional contributions, which is set by the government and changes over time, so the current figure should be checked on ato.gov.au. In some cases, a person may bring forward future years of cap, allowing a larger contribution in a single year, but this is only available if their total super balance is below a threshold and the other conditions are met. People with a very high total super balance may be unable to make non-concessional contributions at all.
Excess non-concessional contributions can have serious tax consequences. The ATO will issue a determination giving the person the option to release the excess, and any associated earnings, from the fund. If the person chooses not to release the excess, it is taxed at a high rate. Because the rules are technical, anyone planning a large contribution should check their position beforehand.
Some contributions are treated differently. For example, proceeds from the sale of certain small business assets that qualify for the CGT small business retirement exemption or the 15-year exemption can be contributed to super without counting towards the non-concessional cap, up to a lifetime limit set by the ATO. The conditions are strict and need to be documented.
GST has no direct role in a non-concessional contribution, as the payment is not for goods or services. A business owner who sells a business may need to deal with GST on the sale, and income tax and CGT, as well as super contributions, but each is handled under its own rules. A spouse contribution made on behalf of a partner is also a non-concessional contribution for the receiving spouse, and may qualify the contributor for a tax offset in certain cases.
A common misunderstanding is that non-concessional contributions are uncapped because they are after tax. They are capped, and the cap is applied on a financial year basis. Another is believing a deduction can be claimed after the fact without the formal notice of intent. If no valid notice is given, the contribution stays non-concessional.
This is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
Elena receives a $50,000 inheritance and pays it into her super fund. This is a non-concessional contribution because she is not claiming a deduction. She checks that $50,000 is within her cap and her total super balance is below the relevant threshold. If she exceeded her cap, say by $10,000, the ATO would issue a determination, and she could elect to release the $10,000 plus earnings.
Practical tips
- Check your total super balance and the current cap before making a large after-tax contribution.
- Keep records of the source of the money, especially if it comes from a business sale where special exemptions might apply.
- If you decide later that you want a tax deduction instead, you must lodge a valid notice of intent before you lodge your return.