What Are Concessional Contributions?
Concessional contributions (also called "before-tax" or "pre-tax" contributions) are payments made into your super from your pre-tax income. They're taxed at just 15% within your super fund, which is typically much lower than your marginal tax rate.
Types of Concessional Contributions
1. Employer Contributions (SG)
The Superannuation Guarantee (SG) is the mandatory contribution your employer makes. As of 2024-25, this is 11.5% of your ordinary time earnings, increasing to 12% by 2025-26.
Example: If you earn $100,000, your employer must contribute at least $11,500 to your super.
2. Salary Sacrifice
Salary sacrifice involves redirecting part of your pre-tax salary directly into super. This reduces your taxable income while boosting your retirement savings.
Benefits:
- Immediate tax savings (15% vs your marginal rate)
- Compound growth on tax savings
- Automatic, consistent contributions
Example: On a $100,000 salary in the 32.5% tax bracket, salary sacrificing $10,000 saves you $1,750 in tax ($10,000 × (32.5% - 15%)).
3. Personal Deductible Contributions
If you're self-employed or want to contribute more than salary sacrifice allows, you can make personal contributions and claim a tax deduction. You must submit a "Notice of Intent to Claim" form to your super fund before lodging your tax return.
The Concessional Cap
For 2024-25, the concessional contributions cap is $30,000 per year. This includes:
- Employer SG contributions
- Salary sacrifice
- Personal deductible contributions
Important: Contributions above the cap are taxed at your marginal rate plus 15% super tax, effectively negating the tax benefit.
15% Contributions Tax
All concessional contributions are taxed at 15% when they enter your super fund. This is called "contributions tax" and is automatically deducted by your fund.
Example: A $10,000 salary sacrifice becomes $8,500 in your super account after the 15% tax.
Division 293 Tax
If your income plus concessional contributions exceeds $250,000, you pay an additional 15% tax on your concessional contributions (or the amount over the threshold, whichever is less).
This means high-income earners effectively pay 30% tax on concessional contributions instead of 15%.
How Division 293 Works
Example: You earn $260,000 and make $20,000 in concessional contributions.
- Total income for Div 293: $280,000
- Amount over $250,000: $30,000
- Div 293 applies to lesser of: $20,000 (contributions) or $30,000 (excess)
- Additional tax: $20,000 × 15% = $3,000
You can pay this from your super or personal funds.
Carry-Forward (Catch-Up) Contributions
If you haven't used your full concessional cap in previous years, you may be able to carry forward unused amounts for up to 5 years. This applies if:
- Your total super balance is under $500,000
- You have unused cap amounts from 2018-19 onwards
Example: If you only contributed $15,000 in concessional contributions last year, you have $15,000 in unused cap space. This year, you could potentially contribute up to $45,000 ($30,000 current cap + $15,000 carried forward).
Who Benefits Most?
Concessional contributions are most beneficial for:
- Middle to high-income earners (higher marginal tax rates)
- Those with consistent employment
- People who can afford to reduce take-home pay
- Those approaching retirement with catch-up room
Key Considerations
- Contribution caps: Stay under the $30,000 annual limit
- Division 293: Factor in the extra tax if you're a high earner
- Preservation: Money is locked until retirement (generally age 60+)
- Insurance: Ensure adequate cover outside super if salary sacrificing significantly
- Timing: Contributions must hit your fund by June 30 to count for that financial year
Strategies
Maximise Tax Efficiency
Contribute up to the cap each year, especially in higher-earning years.
Retirement Planning
In the years before retirement, use catch-up contributions to boost your balance.
Balance Cash Flow
Find the right balance between tax savings and maintaining adequate take-home pay for living expenses.