Saving enough money for retirement involves more than just putting money in the bank. Making non-concessional super contributions can help you save on tax and help you land your dream retirement.
Here’s everything you need to know about non-concessional contributions.
What are Non-Concessional Contributions?
Super contributions are non-concessional when they are made from your after-tax income (ie. you have already paid tax on the money).
This means that when you make this type of voluntary contribution, you don’t need to pay extra tax on them.
Why Make a Non-Concessional Contribution?
Australians make non-concessional contributions to primarily help grow their retirement savings.
However, they also offer may offer the following advantages:
- You will not have to pay tax on contributions.
- When you access your super in retirement, any non-concessional contributions will be returned to you completely tax-free, either as part of a lump sum payment or over time as part of a pension.
- By making a non-concessional contribution you may qualify for a super co-contribution from the Government.
If you have reached the limit you can make with concessional contributions, non-concessional super contributions can be beneficial to save enough for retirement.
Voluntary contributions like these can be in a lump sum or regular small amounts—you decide your payment schedule.
If you’re a self-employed individual or earn money from practising a profession, it lets you save up in the way a salaried employee would.
What are the Types of Non-Concessional Contributions?
There are different types of non-concessional contributions you can make including:
- contributions you make, or your employer makes on your behalf, from your after-tax income
- contributions your spouse makes to your superannuation fund (however, if your spouse is your employer, these will not be considered non-concessional)
- personal contributions which you have not claimed/been allowed as an income tax deduction
- excess concessional (before-tax) contributions which you have not released from your super fund
- contributions exceeding your capital gains tax (CGT) cap amount
- contributions made for you by someone else if you are under 18 and the contributor is not your employer
- most transfers from foreign super funds
- life insurance premiums and fund fees (in some cases)
What Contributions Don’t Count as Non-Concessional?
The following types of superannuation contributions do not count towards your non-concessional contributions cap:
- personal injury payments (also known as structured settlement contributions)
- contributions that you chose to count towards your capital gains tax (CGT) cap that have not exceeded your lifetime limit
- Superannuation downsizer contributions from the proceeds of selling your home.
Concessional vs. Non-Concessional Contributions: What’s the Difference?
A concessional contribution is a pre-tax contribution you make into a superannuation fund, which is taxed at a rate of 15%. This can be tax beneficial. However, concessional contributions have a lower cap meaning you can’t contribute as much as you can non-concessionally.
Meanwhile, non-concessional contributions are made on a post-tax basis. Since you’re paying voluntarily, you don’t have to pay tax after it enters your super fund. What’s more, non-concessional contributions have a higher cap.
What is the Non-Concessional Contributions Cap?
- Concessional contributions are currently capped at $27,500 per financial year.
- However, non-concessional contributions are currently capped at $110,000 per financial year.
Note that the non-concessional cap is not uniform – your cap might differ based on certain factors.
How can you avoid exceeding the non-concessional contribution cap?
Avoid exceeding the cap by knowing your personal contribution caps:
- Always check your total super balance
- Keep track of bring-forward arrangements you make
- Keep records of non-concessional contributions you get, whether through personal payments, employers, or others.
- Seek guidance from one of our financial expert partners
Want to add more money into your super account over the annual non-concessional contribution cap?
You may be able to make extra non-concessional contributions above the cap using the bring-forward arrangement.
This arrangement lets individuals contribute $330,000 at once. However, you will then be ineligible to contribute for the next 3 years.
Eligibility for the bring-forward arrangement depends on your:
- total super balance on 30 June of the previous financial year.
Am I Eligible to Make Non-Concessional Contributions?
You must meet specific contribution rules to be able to contribute to superannuation.
Generally speaking, you have to be under 67 years old.
If you wish to contribute and are above 67, you have to meet the “work test” or the requirements for the work test exemption.
The “work test” stipulates that 67 to 74-year-olds looking to contribute to a super must have worked at least 40 hours over 30 consecutive days in the financial year that they’re making the contribution. Recent retirees and persons in the 67 to 74 age bracket can get an exemption from this requirement. If they meet the work test in the financial year right before the year in which they’re applying, they can be exempted.
Contributors can also get an exemption if their total superannuation balance in the previous financial year is lower than $300,000, and they had not previously used the exemption. Retirees and older individuals must note that they can only utilise the exemption once in their life.
Making Non-Concessional Contributions: 3 Important Things to Remember
- The timing of your super contributions is essential.
When working out the super contributions you must make for each financial year, keep in mind that the contribution will count when your fund receives the payment, not when the contributor sends it. So, you have to be sure that your super fund receives all contributions before the end of the financial year.
- Keep Track of Your Contribution Caps
Contact your adviser or super fund if you are unsure what contributions you can count as non-concessional.
- Multiple Super Funds Don’t Change Your Cap Amounts
If you have more than one fund, the total of non-concessional contributions during a financial year counts toward your contributions cap – rather than having separate caps per fund.
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