Concessional contributions are superannuation contributions made from pre-tax income. They include employer Superannuation Guarantee (SG) payments, salary sacrifice amounts, and personal contributions claimed as a tax deduction. These contributions are taxed at a concessional (lower) rate of 15% within the super fund, which is usually less than most individuals’ marginal tax rates.
Concessional contributions are one of the main ways Australians grow their retirement savings. They help reduce taxable income today while building long-term wealth for retirement.
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From a technical perspective, concessional contributions are capped each financial year by government regulation. In Australia, the annual cap is currently $27,500 (as of 2023–24), though this figure can change with legislation. Unused cap amounts may be carried forward for up to five years, provided the member’s total super balance is under a set threshold.
These contributions are taxed at 15% within the fund, although higher-income earners may pay an additional 15% under Division 293 tax. Contributions above the cap may incur extra tax, turning concessional contributions into excess contributions. Record-keeping and timing of payments are essential for compliance and tax efficiency.
Relevance
- Reduces personal income tax while saving for retirement
- Forms the bulk of employer and salary sacrifice contributions
- Provides significant long-term growth through compounding inside super
Applications
- Employer SG contributions on employee earnings
- Salary sacrificing part of income into super for tax savings
- Making personal deductible contributions to offset taxable income
- Using carry-forward rules to maximise tax-effective contributions in high-income years
Metrics
- Total concessional contributions versus the annual cap
- Tax savings achieved compared to marginal tax rates
- Superannuation balance growth over time
- Use of carry-forward contributions within five years
Issues
- Exceeding the contribution cap leads to additional tax and penalties
- Higher-income earners may face Division 293 tax, reducing benefits
- Inconsistent contributions can reduce compounding benefits
- Lack of awareness of caps can result in compliance issues
Example
An employee earning $90,000 receives compulsory employer SG contributions of $9,900. They also salary sacrifice $10,000 and make a $7,600 personal deductible contribution, reaching the $27,500 concessional cap. This strategy reduces their taxable income and boosts their super balance for retirement.
