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Concessional Contributions - Aged Under 65


 
 
Concessional Contributions

Concessional Contributions are contributions where a tax deduction has been claimed, either by the Member or by an Employer.  Concessional Contributions include the following Contribution Types:

Employer Contributions
Salary Sacrifice Contributions
Personal Contributions where a tax deduction is claimed

Each Concessional Contribution Type is discussed below:

 
 
Employer Contributions

These Contributions are made by your Employer.  Employer Contributions are contributions made by an Employer for the benefit of a SMSF Member commonly known as Superannuation Guarantee Contributions (SGC).  Typically these contributions are made at 9.5% of your salary income.  Your SMSF can accept these Employer Contributions for Members at any time. This means your SMSF may accept them regardless of your age or the number of hours you are working at that time.

 
 
Salary Sacrifice Contributions

These Contributions are made by your Employer on instructions from you.  Salary Sacrifice Contributions are voluntary superannuation contributions made by an Employer to your SMSF over and above their Superannuation Guarantee or award obligations.  These contributions are made to your SMSF instead of to you as an Employee receiving that amount as salary.  For more on Salary Sacrifice Contributions click here.

 
 
Contributions where a Tax Deduction is claimed

These Contributions are made by you. Voluntary Personal Contributions that you make to your SMSF, where you claim a tax deduction for the contribution are also Concessional Contributions.

Before 1 July 2017

Before 1 July 2017, you are only allowed to claim a tax deduction for personal contributions if you satisfy the 10% Rule. The 10% Rule allows you to claim a tax deduction for super contributions if your employment income divided by your assessable income is less than 10%. Employment income includes salary sacrifice contributions (but not SGC contributions) plus reportable fringe benefits. Assessable income includes gross income before deductions and includes salary, investment and business income, net capital gains, salary sacrifice contributions plus reportable fringe benefits.

Example 1:

Assume your salary income from employment is $5,000 and your total assessable income from all sources is $100,000 (predominantly from investment income). You wish to make a personal contribution into your SMSF of $20,000 and claim this amount as a tax deduction. In that case you will divide $5,000 / $100,000. In this case the result of 5% will be under 10% enabling you to claim a tax deduction for the personal contribution of $20,000.

Example 2:

Alternatively assume your salary income from employment is $100,000 and your total assessable income from all sources is $100,000 (i.e. your salary makes up all your assessable income). You wish to make a personal contribution into your SMSF of $20,000 and claim this amount as a tax deduction. In that case you will divide $100,000 / $100,000. The result of 100% will exceed 10%. This means that you cannot claim a tax deduction for the personal contribution of $20,000 in this example.

After 1 July 2017

From 1 July 2017, if you are aged under 65, you are allowed to claim a tax deduction for personal contributions regardless of your employment situations.

 
 
Work Test Requirement to make a Concessional Contribution

If you are under age 65 you do not need to pass a Work Test to make a Concessional Contribution into your SMSF.

 
 
Maximum Concessional Contributions Allowed

If you are under age 65, the following limits apply per Member for Concessional Contributions made into your SMSF. The limits apply to the total of your Employer, Salary Sacrifice and Personal Concessional Contributions

Income Year Age Concessional Contributions Cap
per member per annum
2017-18 Over 50 at any time during the Financial Year $25,000
Under 50 for entire Financial Year $25,000
2016-17 Over 50 at any time during the Financial Year $35,000
Under 50 for entire Financial Year $30,000
2015-16 Over 50 at any time during the Financial Year $35,000
Under 50 for entire Financial Year $30,000

 
 
Additional to Non Concessional Contributions

The limits detailed above are in addition to any Non Concessional Contributions that you are permitted to make into your SMSF.

 
 
Tax on Concessional Contributions

Tax is payable on Concessional Contributions made into a SMSF at the rate of 15%.

 
 
Additional 15% tax on Concessional Contributions for high-income earners

Those earning more than $250,000 a year will have their Concessional Contributions taxed at 30% rather than the standard 15%. The definition of 'income' is: Taxable income + concessional contributions + adjusted fringe benefits + total net investment losses.

Importantly Concessional Contributions (i.e. your employer's contribution, salary sacrifice contributions and contributions by a self-employed person claiming a tax deduction) will count as income. For example, if your taxable income is $280,000 and your employer makes $25,000 in concessional contributions, you will trigger the threshold because your income will be assessed as $305,000 (i.e. $280,000 + $25,000 = $305,000). The additional tax of 15% (30% in total) will apply to those concessional contributions that take your income over $250,000, which in this case is on the extra $55,000.

More importantly, income includes investment losses including losses on borrowing money to buy shares or from negatively geared property. For example assume your taxable income is $200,000, which has been calculated after deducting a net $90,000 loss on investment properties. You also receive $10,000 in fringe benefits, and your employer makes super contributions of $18,000. Under the rules, your income is $318,000. This is $68,000 above the $250,000 income trigger, which means your concessional contributions will now be taxed at 30% instead of 15%.

 
 
Low income earners won't pay contributions tax

Effectively, a person whose income is less than $37,000 will have the contributions tax on concessional contributions returned to their Fund, meaning they won't pay any contributions tax. Worth a maximum of $500, the Australian Taxation Office (ATO) will pay the Low Income Superannuation Tax offset refund to the SMSF. Like the co-contribution, a key eligibility requirement is that at least 10% of the person's income must come from employment.

 
 
ATO Tax Deduction Notice

No documentation is required to be completed if you make an "Employer" or "Salary Sacrifice" Concessional Contribution into your SMSF. If you make a personal Concessional Contribution into your SMSF and in turn claim a Tax Deduction on that Contribution, you will need to complete an ATO Tax Deduction Form evidencing the Tax Deduction. The form can be found here for completion.

 
 
All Concessional Contributions are made to the Transaction Bank Account

All Concessional Contributions made by each Member of the SMSF must be deposited into the Transaction Bank Account established for your SMSF.   There is only one Transaction Bank Account established for your SMSF and all Members must deposit Contributions into the same Transaction Bank Account.  It is unnecessary and administratively inefficient to have a separate Transaction Bank Account for each Member.

 
 
How ESUPERFUND tracks Concessional Contributions

Each Contribution and Contribution Type must be allocated to a specific Member as part of the annual compliance process.  This is a legal requirement.  Typically the Member making the Contribution and the Contribution Type will be detailed on the Bank Statement.  To the extent that the narration on the Bank Statement is insufficient, you will be asked to confirm on whose behalf the contributions have been made and the Contribution Type using an annual checklist we send to all SMSF clients each year in July.  You do not need to send us confirmation at the time each Concessional Contribution is made. This information is only required annually and we will guide you through the process and prompt you when information is required from you.  For more visit our Q&A section here.

 
 
Excess Concessional Contributions

If you exceed your Concessional Contribution Limit, the Excess Contributions over the Concessional Contribution Limit will be taxed at your actual marginal tax rate, plus an interest charge calculated by the ATO (as would happen for income tax paid late to the ATO), rather than the top marginal tax rate. If you're already on the top marginal tax rate, you only need to pay the interest charge.

To avoid the above disastrous situation, it is vital that you keep track of all your Concessional Contributions, noting that Contributions are regarded as being paid at the time they are received by the fund.

 
 
Catch up concessional Contributions

From 1 July 2018, you will be able to make 'carry-forward' concessional super contributions if you have a total superannuation balance of less than $500,000 at 30 June of the previous Financial Year.

If you are eligible, you will be able to access your unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

Only unused amounts accrued from 1 July 2018 can be carried forward. This means the first year in which you can access unused concessional contributions is the 2019-20 financial year.

This increased flexibility will make it easier for people with varying capacity to save and for those with interrupted work patterns, to save for retirement and benefit from the tax concessions to the same extent as those with regular income.