Concessional Contribution Catch-up

Superannuation is a tax-effective way to save for your retirement in Australia. Both pre-tax super contributions and super fund earnings are taxed at the concessional rate of just 15%. That’s lower than even the lowest marginal tax rate.

What are concessional contributions?

‘Concessional contributions’ is the term used to describe any contributions made to super from your pre-tax income. Concessional contributions include:

compulsory super payments made by your employer on your behalf. Employers are currently legally obliged to pay 9.5% of your ordinary time earnings into your super, provided you’re over the age of 18 and you earn more than $450 per month. This is known as the superannuation guarantee. This contribution percentage will progressively increase to 12% by 1 July 2025.
any salary sacrifice arrangements that you may have for your employer to pay an additional part of your pre-tax salary or wages into your super. This is an effective way to both boost your super and reduce the amount of income tax that you’re required to pay.

What is the concessional contributions cap?

There is a limit to the amount of concessional contributions that you can make in any single financial year. This is known as the concessional contributions cap. This cap is currently $27,500 per year.

If your concessional contributions exceed this cap, you will pay tax on the excess at your marginal rate (less a 15% rebate for the concessional tax paid on the contribution in your super fund), unless you’re eligible to make use of the concessional contribution catch-up.

What is the concessional contribution catch-up?

The concessional contribution catch-up was introduced on 1 July 2018. It allows you to carry forward any unused concessional contributions cap space that you may have for up to five years, provided that your total super balance at the end of the previous financial year is less than $500,000.

The 2018/2019 financial year was the first one where you may have accumulated some unused concessional cap space that you may be eligible to use over the next five years.

Example

If your total concessional contributions in the 2018/19 financial year were $10,000, you will have unused concessional contributions space of $15,000 to carry forward (i.e. the concessional contributions cap of $25,000 less your $10,000 worth of contributions).

You could then potentially carry forward this unused $15,000 for the next five years, and any additional unused cap amount over the next four years could continue to be added to this initial amount. This is illustrated in the table below, along with the projections if you did the same thing each year for the next four years.

2018/19

2019/20

2020/21

2021/22

2022/23

Your annual concessional contributions cap

$25,000

$27,500

Your annual concessional contributions made

$10,000

Your annual unused concessional contributions cap

$15,000

Your total superannuation balance

$200,000

$226,000

$254,000

$284,000

$316,000

Your cumulative concessional contributions cap

$15,000

$30,000

$45,000

$60,000

$75,000

It’s important to understand that you must any unused concessional contributions in any one year within the next five years.

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

There are two types of super contributions: concessional and non-concessional. As we’ve already explained, concessional contributions are made from your pre-tax income and they are taxed at the concessional rate of 15%.

Non-concessional super contributions on the other hand are made from after-tax income. They are not taxed when they enter your super fund at all, but any earnings on them are taxed at 15%. There is a non-concessional contributions cap and it is currently $100,000 per year. Non-concessional contribution in excess of this cap are taxed at the maximum marginal rate of 45% (plus the 2% Medicare levy).

How we can help

At Qi Wealth, our experienced, expert team of superannuation advisers can help you to maximise your superannuation nest egg and save tax at the same time. We can also help you if you want to set up your own SMSF. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice. We develop long-term, trusted relationships with our clients.