When looking to build an appropriate super nest egg for your retirement, time coupled with financial contributions can play a crucial role. If you’ve been wondering about concessional contributions – what these mean and how you can use them to build more in your super – this article outlines the finer details.
Most employees receive employee super guarantee contributions, which are currently set at 9.5% of an employee’s ordinary time earnings base. These employer super guarantee contributions are a type of concessional contribution.
A concessional contribution generally refers to any contribution which can be claimed as a tax deduction by the contributor. This encompasses all employer contributions, including salary sacrifice and personal deductible contributions.
To make concessional contributions other than employer super guarantee contributions, you must first be eligible to contribute to super. Eligibility is based on your age and your employment situation:
- Individuals aged under 67 can make concessional contributions regardless of their employment situation
- Individuals aged from 67 to 75 can make concessional contributions in a financial year if they have met the work test or if they qualify for the work test exemption
- Individuals 75 and older are not eligible and cannot make concessional contributions.
It’s important to note that the amount of concessional contributions invested is reduced by a tax of 15%. This is called contributions tax. However, individuals with income and concessional contributions totaling more than $250,000 can pay an additional 15% tax, called Division 293 tax, on some or all of their concessional contributions.
Individuals with an adjusted taxable income, up to $37,000, can receive the low-income super tax offset, which effectively refunds the first $500 of contributions tax into a super.
Concessional contribution cap
There are caps on contributions that can be concessionally taxed. The concessional contributions cap is currently $25,000 per individual per financial year. However, any unused portion of a person’s concessional contributions cap from the 1st of July 2018 can be carried forward for up to five financial years, provided that your total super balance for the prior 30th of June did not exceed $500,000.
If you exceed your contributions cap, any excess is taxed at your marginal tax rate, less a 15% tax offset, and an interest charge also applies. If the excess isn’t withdrawn from super, it counts toward your non-concessional contributions cap.
As when making any financial decision, it’s important to consider seeking professional advice. If you need assistance in preparing for retirement or have questions about making concessional contributions, contact our financial planning experts at Accru Harris Orchard today.
Disclaimer: The information contained in this article is based on information believed to be accurate and reliable at the time of publication. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this blog. This information is of a general nature only. It is not intended as personal advice and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs