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Concessional contributions are types of contributions made into your super fund from your employer where a tax deduction has been claimed by the employer or from you if you are a high-income earner. They are also known as salary sacrifice, which reduces your taxable income. Note that no deduction is claimed if you are a low-income earner and your employer voluntarily contributes to your superannuation fund. As a result, it is not considered a concessional contribution.
In this article, we’ll go into detail about concessional contributions. Read on below to learn more.
More about Concessional Contribution
Concessional contributions are contributions made into your super account that have been taxed at the source by the government. Concessional contributions include:
- Employer and salary sacrifice contributions.
- Personal contributions that have been taxed at source by the government.
- 50% of your total net investment income.
- 100% of your net capital gains.
Your concessional contributions are subject to a limit and are classified as contributions made into your super account where the contributor has claimed a tax deduction.
A maximum amount can be contributed to your super account as concessional contributions each year, which is known as the concessional contributions cap. The superannuation concessional contributions cap is assessed per person, per annum basis. In Australia, the current cap amount is $27,500.
Concessional contributions are subject to a different tax treatment than non-concessional contributions. The former is subject to a 15 per cent tax rate. This means that the net value of your superannuation account is reduced by 15 per cent when a calculation is made to determine the amount of tax payable on the amount of income earned by your superannuation fund.
The Unused Concessional Contributions Cap
Suppose you have an excess concessional contributions cap amount. In that case, you can only utilise the extra amount in a financial year if your total super balance was below $1.25 million on 30 June of the previous financial year. Once $1.25 million is exceeded, you can’t utilise that excess amount anymore.
If you are over 50 and have any unused concessional contributions cap, that amount can be carried forward indefinitely.
The contributions made under the Rule must be re-characterized as concessional contributions to your accumulation super fund. You are not required to re-characterize these contributions to your accumulation super fund, but it’s recommended that you do so as this will help you to keep track of the amounts re-characterized.
Concessional contributions are not subject to the super guarantee contribution tax of 15% for employees earning more than $350,000 annually.
Excess Concessional Contributions
You can withdraw all or part of the excess if you contribute more than your concessional contributions cap. Non-concessional contributions are not included in the excess amount. For example, suppose you are over the concessional cap by $5,000 and have contributed $3,000 to super (concessional contributions) in the same year. In that case, you will be able to withdraw all of the excesses.
You have 30 days from the date of receiving your notice from the Australian Taxation Office to withdraw the excess amount ̶ they will notify you in writing when you have exceeded the concessional contributions cap. If you do not withdraw the excess, it will be added to the amount you can contribute in the following year.
An additional tax of 47% will be payable on the excess amount, and the tax will be applied on a 12-month basis from the financial year in which you have contributed more than your concessional cap.
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Having a super account is essential when you reach retirement age, which is why it’s recommended that you start as early as whenever possible. Your older self will thank you for it because you’ll have little to no worries about monetary needs in retirement.
To learn more information about your super contributions, check out these posts:
- A Beginner’s Guide to Understanding the Basics of Superannuation
- Pros and Cons of Increasing Your Super Contributions
Coastal Advice Port Macquarie provides top-quality services for superannuation financial planning. We understand the needs of seniors, which is why we give various options to help them in retirement planning. Contact us today to learn more!
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.