What are non-concessional contributions to superannuation?

What are non-concessional contributions to superannuation?

A Superannuation fund, or 'super fund', is a type of account in which a percentage of your income is put into it for your retirement. In addition to employer contributions, you may wish to add extra savings to super for a more comfortable retirement. Here’s what you need to know about non-concessional (after-tax) super payments to get started.

What are concessional and non-concessional contributions?

If you are over 18 years of age and earning at least $450 per month, you are eligible to receive super from your employer. You can also make voluntary contributions to your super, subject to the limits set by the Australian Taxation Office (ATO).

Superannuation contributions are typically divided into concessional (before-tax) and non-concessional (after-tax) contributions.

Concessional contributions are made from your pre-tax salary. They also refer to personal contributions that may be able to be claimed as a tax deduction from the ATO. Generally, concessional contributions include:

  • Compulsory contributions made by your employer into your super fund.
  • Personal contributions made through any salary sacrifice arrangement with your employer.

Concessional super contributions are usually taxed at a reduced rate of 15 per cent. However, your total concessional super contributions should not cross $25,000 in a financial year. Any excess amount over this limit could be considered a non-concessional superannuation contribution and may attract a higher tax rate.

Voluntary contributions to your super using your after-tax dollars are called non-concessional super contributions. Non-concessional contributions are not taxed when they are received by your super fund because you have already paid tax on the money.

It is also possible to make non-concessional contributions to your spouse’s super using your after-tax dollars to receive a tax offset of up to $540 per year, subject to their non-concessional super contribution limits, among other things. You can read more about tax offsets and super contributions on behalf of your spouse on the ATO website.

What are superannuation non-concessional contribution limits?

The amount of non-concessional super contributions you can make each financial year is capped at $100,000 if your super balance is less than $1.6 million. If your super balance is over $1.6 million, you are not eligible to make non-concessional contributions under current rules.

Furthermore, if you are 65 or younger, you may be able to ‘bring forward’ the next two years’ worth of contributions ($300,000) within a single year. If you choose to use this rule and meet the conditions, you can contribute up to three years’ worth of contributions in a single year without having to pay additional tax. The government is looking at increasing the age for the bring-forward rule, so it’s always worth keeping an eye on the ATO website for the latest updates.

What are the contribution rules for recent retirees?

If you are over 67 years of age, you need to satisfy a ‘work test’ before you can make contributions to your fund. To meet the work test, you should have worked at least 40 hours within 30 consecutive days in that financial year before your contributions can be accepted. 

It is also possible for the work test to be waived for an additional 12-month period from the end of the financial year in which you last met the work test if your total super balance is less than $300,000. 

Once you reach 75, you are generally ineligible to make any voluntary contributions except for downsizer contributions

Why should I consider non-concessional superannuation contributions?

Growing your super fund through voluntary contributions can help you build a sizeable fund for your retirement. There are several benefits of making non-concessional super contributions, such as:

  • There is no tax on contributions because you’ve already paid tax on the money.
  • Your investment earnings will be taxed at 15 per cent.
  • You don’t have to pay tax on withdrawals

However, before you plan on super contributions, keep in mind that you cannot access your super until you retire and the conditions of release are met. It may also help to seek advice from a financial adviser or keeping a close eye on the ATO’s non-concessional contribution limit, as crossing the thresholds can lead to excess contributions tax.

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Learn more about superannuation

What are concessional contributions?

Concessional contributions are pre-tax payments into your superannuation account. The payments made by your employer are concessional payments. You can also make concessional contributions with a salary sacrifice.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

What contributions can SMSFs accept?

SMSFs can accept mandated employer contributions from an employer at any time (Funds need an electronic service address to receive the contributions).

However, SMSFs can’t accept contributions from members who don’t have tax file numbers.

Also, they generally can’t accept assets as contributions from members and they generally can’t accept non-mandated contributions for members who are 75 or older.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.