What are non-concessional contributions to superannuation?

A Superannuation fund, or 'super fund', is a type of account in which a percentage of your income is put into it for your retirement. In addition to employer contributions, you may wish to add extra savings to super for a more comfortable retirement. Here’s what you need to know about non-concessional (after-tax) super payments to get started.

What are concessional and non-concessional contributions?

If you are over 18 years of age and earning at least $450 per month, you are eligible to receive super from your employer. You can also make voluntary contributions to your super, subject to the limits set by the Australian Taxation Office (ATO).

Superannuation contributions are typically divided into concessional (before-tax) and non-concessional (after-tax) contributions.

Concessional contributions are made from your pre-tax salary. They also refer to personal contributions that may be able to be claimed as a tax deduction from the ATO. Generally, concessional contributions include:

• Compulsory contributions made by your employer into your super fund.
• Personal contributions made through any salary sacrifice arrangement with your employer.

Concessional super contributions are usually taxed at a reduced rate of 15 per cent. However, your total concessional super contributions should not cross $25,000 in a financial year. Any excess amount over this limit could be considered a non-concessional superannuation contribution and may attract a higher tax rate.

Voluntary contributions to your super using your after-tax dollars are called non-concessional super contributions. Non-concessional contributions are not taxed when they are received by your super fund because you have already paid tax on the money.

It is also possible to make non-concessional contributions to your spouse’s super using your after-tax dollars to receive a tax offset of up to $540 per year, subject to their non-concessional super contribution limits, among other things. You can read more about tax offsets and super contributions on behalf of your spouse on the ATO website.

What are superannuation non-concessional contribution limits?

The amount of non-concessional super contributions you can make each financial year is capped at $100,000 if your super balance is less than $1.6 million. If your super balance is over $1.6 million, you are not eligible to make non-concessional contributions under current rules.

Furthermore, if you are 65 or younger, you may be able to ‘bring forward’ the next two years’ worth of contributions ($300,000) within a single year. If you choose to use this rule and meet the conditions, you can contribute up to three years’ worth of contributions in a single year without having to pay additional tax. The government is looking at increasing the age for the bring-forward rule, so it’s always worth keeping an eye on the ATO website for the latest updates.

What are the contribution rules for recent retirees?

If you are over 67 years of age, you need to satisfy a ‘work test’ before you can make contributions to your fund. To meet the work test, you should have worked at least 40 hours within 30 consecutive days in that financial year before your contributions can be accepted. 

It is also possible for the work test to be waived for an additional 12-month period from the end of the financial year in which you last met the work test if your total super balance is less than $300,000. 

Once you reach 75, you are generally ineligible to make any voluntary contributions except for downsizer contributions. 

Why should I consider non-concessional superannuation contributions?

Growing your super fund through voluntary contributions can help you build a sizeable fund for your retirement. There are several benefits of making non-concessional super contributions, such as:

• There is no tax on contributions because you’ve already paid tax on the money.
• Your investment earnings will be taxed at 15 per cent.
• You don’t have to pay tax on withdrawals

However, before you plan on super contributions, keep in mind that you cannot access your super until you retire and the conditions of release are met. It may also help to seek advice from a financial adviser or keeping a close eye on the ATO’s non-concessional contribution limit, as crossing the thresholds can lead to excess contributions tax.

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