Ian Littler, Stephen Baird

As Financial Advisers, we appreciate the need to demystify the jargon when it comes to financial planning.  To this end, today we’ll be looking at the differences between concessional and non-concessional contributions.  Find out below how it could apply to you.

Concessional Contributions to Superannuation

Concessional contributions are deposits made into a superannuation fund on a pre-tax basis. These contributions are subsequently taxed at the concessional (discounted) rate of 15%. This is lower than most people’s marginal tax rate, making superannuation a tax-effective way to grow wealth. Concessional contributions are generally capped at $25,000.

The three most common forms of concessional contributions are:

  • employer contributions 
  • salary sacrifice
  • tax-deductible personal contributions. 

Non–Concessional Contributions to Superannuation

Non-concessional contributions are made by an individual on a post-tax basis. As such, it doesn’t attract any further tax upon entering the superannuation fund. Non-concessional contributions are capped at $100,000 per year. 

If an individual is under 65, they can utilise a ‘Bring Forward Provision’ and contribute $300,000 in one go, provided they make no further non-concessional contributions for three-years. Effectively, they use three year’s worth of caps in one go. 

If a client decides to fully utilise the bring forward provision to contribute $300,000 to their superannuation fund they cannot make any non-concessional contributions in the next 2 financial years. A client can also elect to use just part of the next years’ cap (as opposed to all of it).

In 2020/21 the maximum a person can have across all their superannuation accounts and related assets before incurring extra tax is $1.7 million. The cap will rise periodically in increments of $100,000 in line with CPI. The total superannuation balance is important because it is used to calculate eligibility for: the unused concessional contributions cap carry-forward the non-concessional contributions cap government co-contributions tax offsets for spouse contributions to super.

If you require help with understanding what’s best for you, the team at Superannuation Advice Australia can help.  Contact us today!