What are concessional contributions?

Key takeaways:

• Concessional contributions are contributions made into your super before-tax.
• The annual cap for concessional contributions is $27,500 for the 2023–24 tax year.
• Understanding the difference between concessional and non-concessional contributions and how they work is key to making the most of your super.

What are concessional contributions?

Concessional contributions are contributions made into to your superannuation fund before-tax. They're often referred to as ‘pre-tax contributions’ for this reason. They generally make up the majority of your super contributions as they include contributions your employer makes into your super and are taxed at 15%. To find out more, view the Australian Taxation Office (ATO) website.

Concessional contributions can come from several sources, including:

• Employer Super Guarantee contribution amounts.
• Salary sacrifice contributions that you’ve arranged with your employer.
• After-tax contributions you’ve made that you elect to make tax-deductible by completing the ATO notice of intent to claim a tax deduction form.

What’s the difference between concessional and non-concessional contributions?

Understanding the difference between concessional and non-concessional contributions, and the limits around them, is key to making the most of your super account and retirement savings.

Concessional contributions are paid into your super before tax is deducted. Depending on your personal income tax rate, they can be a tax-effective way to boost your super balance, as they only attract 15% tax.

In contrast, non-concessional contributions are voluntary contributions you make after-tax from your bank account or other savings. They differ from concessional contributions like salary sacrificing because tax has already been paid on the funds used to make the contribution. Topping up your super with a voluntary, non-concessional or after-tax contribution could also be a clever way to boost your super balance for the future.

There are several types of contributions that are considered non-concessional (after-tax), including:

• Personal voluntary contributions
• Spouse contributions
• Downsizer contributions
• Any before-tax contributions over the before-tax contribution limit, that are treated as after-tax contributions

Learn more about non-concessional contributions.

Is there a cap for concessional contributions?

There is a limit on concessional contributions and therefore the lower tax rate.

Currently, the concessional contribution cap is $27,500 for the 2023–24 tax year. Any concessional contributions you make over the cap are included in your taxable income and taxed at your marginal tax rate, with an additional excess concessional contributions charge.

What if I don’t reach the cap?

If you contribute less than the concessional contributions cap, you can carry forward the cap. Basically, if you do not contribute up to the concessional contributions cap (e.g. $27,500) for a particular financial year, you may be able to carry the remaining cap balance forward so you can contribute more than $27,500 the following year.

There are some rules that apply to carry-forward concessional contributions, including:

• It only applies to unused concessional contribution cap amounts from July 2018 onwards.
• Any amounts eligible to be carried forward expire after five years.
• You can only carry forward concessional contributions if your total super balance was less than $500,000 at the end of the previous financial year.

How can I make sure I don’t go over the concessional contributions cap?

Going over the cap on concessional contributions could leave you with extra costs. According to the ATO, you may be able to avoid exceeding the cap by following these steps:

• Be aware of what the cap is
• Keep tabs of what your super balance is
• Check when your employer (or employers, if you have more than one job) pays your contributions and when they are received by your super fund. The ATO says contributions count towards a cap in the year your super fund receives them, not when they were paid.
• Consider stopping or reducing any before-tax contributions to your super, if you think you may go over your concessional contributions cap in the current financial year.

For more information on concessional contributions, you can visit our contributions page. You can also find out more about salary sacrifice.

Before joining Australian Retirement Trust, consider the potential loss of insurance and other benefits that you may have in your other funds. The information contained on this website is general information only and does not take into account your individual objectives, financial circumstances or needs. You should consider your own objectives, financial circumstances and needs, before making a decision about the financial product. Also, think about where your future employer contributions will be paid. You should consider the Product Disclosure Statement and Target Market Determination before deciding whether to acquire, or continue to hold the product. For more information or financial advice from Australian Retirement Trust, call us on 13 11 84.