Guide to Concessional Contributions (CCs)
Concessional contributions (CCs) play a vital role in superannuation planning, offering tax advantages and enabling Australians to grow their retirement savings. This guide explains the types of concessional contributions, caps, eligibility criteria, and strategic opportunities associated with CCs.
What Are Concessional Contributions?
Concessional contributions are pre-tax contributions to superannuation, which are generally included in the assessable income of a super fund and taxed at 15% (or 30% for high-income earners subject to Division 293 tax). These include:
Mandated Employer Contributions:
Superannuation Guarantee (SG) contributions.
Contributions required by industrial agreements or awards.
Voluntary Employer Contributions:
Salary sacrifice contributions.
Additional employer contributions beyond the mandated amounts.
Personal Deductible Contributions:
Contributions made by individuals who claim a tax deduction.
Key Exclusions:
Rollovers and non-concessional contributions.
Transfers from foreign funds included in the assessable income of the fund.
Annual Cap and Indexation
Cap Amounts:
For 2024/25, the annual concessional contributions cap is $30,000.
The cap is indexed to average weekly ordinary time earnings in increments of $2,500.
Carry-Forward Arrangements:
Individuals with a total super balance below $500,000 at 30 June of the previous financial year can carry forward unused cap amounts for up to five years.
Example: Joe’s employer contributes $10,000 annually. Over five years, he accumulates $100,000 in unused cap amounts. In 2024/25, he can contribute $70,000 without exceeding his cap, leveraging the unused amounts.
Eligibility and Age Restrictions
Under Age 67:
No work test is required.
Age 67 to 74:
Personal deductible contributions require meeting the work test or work test exemption.
Over Age 75:
Only mandated contributions (e.g., SG) are allowed.
Work Test Exemption:
Available for retirees aged 67 to 74 who:
Met the work test in the previous financial year.
Have a total super balance below $300,000 as of 30 June prior.
Have not used the exemption before.
Tax Implications of Concessional Contributions
Tax Within the Fund:
Contributions are taxed at 15% within the super fund.
An additional 15% (Division 293 tax) applies to individuals with income exceeding $250,000.
Low-Income Offset:
Individuals with an adjusted taxable income below $37,000 receive the Low Income Superannuation Tax Offset (LISTO), effectively refunding up to $500 of the tax paid on concessional contributions.
Exceeding the Cap:
Excess concessional contributions are added to the individual’s assessable income and taxed at their marginal tax rate, with a 15% offset for tax already paid by the super fund.
Salary Sacrifice vs. Personal Deductible Contributions
Salary Sacrifice Contributions:
Made by an employer under an agreement to forgo a portion of salary.
Tax-effective strategy for reducing taxable income.
Personal Deductible Contributions:
Made by an individual and claimed as a tax deduction.
Requires lodging a valid “Notice of Intent to Claim a Deduction” with the super fund.
Key Consideration: Personal deductible contributions may impact government benefits such as the Medicare Levy Surcharge or private health insurance rebates.
Strategic Opportunities with Concessional Contributions
Tax Efficiency:
Contributing up to the cap can reduce taxable income while growing retirement savings.
Catch-Up Contributions:
Ideal for individuals who have taken career breaks or have lower super balances.
Offsetting Capital Gains Tax (CGT):
Using concessional contributions to reduce taxable income when selling investment properties.
Example: Mike sold an investment property with a $200,000 capital gain. By contributing $30,000 to super, he reduced his taxable income, saving thousands in CGT.
