Concessional contribution rules

Technical resource

Concessional contributions are contributions where a tax deduction has been claimed. A general cap applies but some may be able to use carry forward amounts.

For Adviser use only

Concessional contributions are contributions where a tax deduction has been claimed. They are included in the taxable component of a super fund and form part of a person's preserved benefits. The general limit for the 2020/21 financial year is $25,000 per individual. This limit is indexed each year in accordance with Average Weekly Ordinary Time Earnings (AWOTE) and increases in $2,500 increments (rounded down).

Since 1 July 2018, individuals may accrue any unused concessional contribution cap amounts over a five-year rolling period, with the first opportunity to use these unused amounts commencing from 1 July 2019. To be able to use the 'catch up' amount, an individual's total super balance must be below $500,000 on 30 June, just prior to the commencement of the financial year in which they are to be used.

Concessional contributions include:

  • Super Guarantee and Super Guarantee shortfall
  • Salary sacrifice contributions
  • Voluntary employer contributions
  • Personal deductible contributions
  • Unreasonable allocations from reserves
  • Notional taxed contributions (applicable to taxed defined benefit funds)

These amounts are measured against the member’s concessional contribution cap in the financial year they’re allocated to the member’s account.

Excess concessional contributions

Concessional contributions are taxed at 15% inside a super fund. If a member exceeds their concessional contribution cap, an amount equal to the excess contribution will be included in the member's assessable income in the tax year the excess contribution was made.

The member will also be entitled to receive a 15% tax offset, to reflect the tax already levied within the super fund. This results in the excess contribution being taxed at the member's marginal rate of tax. Importantly, the 15% tax offset is not able to be refunded, transferred or carried forward.

An excess concessional contribution charge (ECCC) will be levied on the tax shortfall. The ECCC will be charged at the same rate as the shortfall interest charge, and will apply from the first day of the income year the excess concessional contribution was made. The charge period will end the day before the tax is due to be paid under the person’s first income tax assessment for that year.

Example

Mary is on a marginal tax rate of 34.5% including Medicare levy. She has made an excess concessional contribution of $10,000, which will result in her having a tax liability of $3,450 on the excess contribution amount. As she has had 15% tax deducted by her super fund, the amount of ECCC will be based on the additional tax liability, which is calculated as $3,450 - $1,500 = $1,950.

Refund of excess concessional contributions

Excess concessional contributions are refunded to the ATO, who in turn deduct any outstanding tax liabilities before passing the residual amount back to the member. The refund is at the discretion of the member, however they must make an election within 60 days of receiving the excess contributions notice. The refund that can be requested is limited to 85% of the excess concessional contribution.

Treatment of excess concessional contributions

Excess concessional contributions not refunded, will count towards a member’s non-concessional contribution (NCC) cap. However, if an individual elects to have the excess contribution refunded (either in part or in full), the excess amount which counts towards their NCC cap will be reduced accordingly.

The reduction is calculated as 100/85 of the amount released, recognising that the refunded amount is the amount remaining after contributions tax has already been deducted.

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