Difference between concessional and non-concessional contributions
So, what’s the difference between concessional and non-concessional contributions to your super?
Basically, ‘concessional’ contributions means pre-tax. That is, they go into your super before your regular income tax is taken out of your pay. So you don’t pay your normal rate of tax on the money that goes into your super – instead of paying the tax you normally would (say 32.5% or 37%), it’s taxed at the lower, ‘concessional’ rate of 15%. High income incomers may have to pay extra tax.
Concessional contributions can be made in a number of ways. The most common is via the Superannuation Guarantee your employer is legally obligated to pay – currently 10.5%.
The other common way is ‘salary sacrifice’ payments you make into your super – these are amounts you choose to pay in over and above what your employer has to pay.
Non-concessional contributions on the other hand are contributions coming from your after tax pay, and because you have already paid tax on it, it goes into your super dollar-for-dollar.
It’s important to remember there are limits on how much you can contribute to your super, and these are different for different people. The limits can be found on the Australian Tax Offices’ website at www.ato.gov.au. How you calculate the limit is based on your personal situation.
There are also a few other ways you can make concessional contributions, or maximise the amount your able to contribute concessionally, but these can be a bit tricky for a short article like this! If you’ve got any questions, don’t hesitate to get in contact or schedule an advice session – it’s Vision Super’s job to make it easy for you.
What is a salary sacrifice contribution? And how can I make catch up contributions?
Effectively, ‘salary sacrificing’ is just a straightforward way for you to contribute to your super and pay less tax. That’s why it’s often referred to as a ‘concessional’ contribution – you nominate a set amount of your pre-tax income to go into your super before your regular income tax is taken out. So instead of paying tax at the rate you normally would (say 32.5%, 37% or even 45%), the contributions you make are taxed at the lower, ‘concessional’ rate of 15%.
High income earners may have to pay extra tax. The amount you can contribute this way isn’t unlimited though – currently the concessional cap limit is $27,500 in a financial year. This can vary though depending on whether you’ve contributed this full amount in previous years and what your 1 July balance is – your cap may very well be higher! This is called the ‘carry forward’ of unused concessional contributions.
There are a number of ways you can make use of carry-forward contributions, and it’s one of the things we help people with all the time. Vision Super can help you to get the best out of the contributions you make to your super – just give us a call or schedule a session with one of our team, and we’ll be happy to talk you through it.
This article includes general information and does not contain any personal advice. It is provided for general information only, to help you understand Vision Super’s products, services, policies and procedures. It does not consider your personal objectives, financial situation or needs. You should consider whether it is appropriate for you and your personal circumstances and, if necessary, you should seek professional financial advice. Vision Super products are issued by Vision Super Pty Ltd ABN 50 082 924 561 AFSL 225054 RSE licence number L0000239 as the Trustee of the Local Authorities Superannuation Fund ABN 24 496 637 884.