Understanding Superannuation Contributions: Concessional vs Non-Concessional Contributions

Superannuation is one of the most tax-effective ways to save for retirement in Australia, and making contributions to your super fund can significantly improve your financial future. There are two types of contributions you can make: concessional and non-concessional. Both serve different purposes and have distinct tax implications, so understanding the differences between them is crucial for effective retirement & taxation planning.

What Are Concessional Contributions?

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A concessional superannuation contribution is a before-tax contribution, also known as a concessional super contribution, made to your super fund. These include employer contributions (the 11.5% Super Guarantee), salary sacrifice contributions, and voluntary contributions for which you claim a tax deduction. 

Example: Tax Deduction with Salary Sacrifice

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Let’s consider a scenario where your annual income is $100,000, and you’re in a marginal tax bracket of 30.0%, plus the 2% Medicare Levy, making a total tax rate of 32.0%.

You have three options:

Option 1: No Super Contributions

If you don’t make any additional contributions to your super and receive the full $100,000 as income, you’ll pay tax at your marginal rate of 32.0%.

• Tax on $15,000 (assuming this portion of income is not reduced by deductions):
  • $15,000 × 34.5% = $4,800 in tax.

Option 2: Super Contribution of $15,000 (Concessional)

If you decide to contribute $15,000 into your superannuation account, that amount will be taxed at the concessional super rate of 15% instead of your higher marginal tax rate.

• Tax on the $15,000 super contribution:
  • $15,000 × 15% = $2,250 in tax. 

By contributing the $15,000, you save $2,548 in tax ($4,800 – $2,250), and the contribution goes toward your future retirement savings, compounding over time.

Option 3: Salary Sacrifice of $200 per fortnight into Super

If you decide to salary sacrifice $200 per fortnight into your superannuation account, that amount will be taxed at the concessional super rate of 15% instead of your higher marginal tax rate.

• Tax on the $5,200 super contribution ($200 x 26):
  • $5,200 × 15% = $780 in tax.

By salary sacrificing the $5,200, you save $884 in tax ($1,664 – $780), and the contribution goes toward your future retirement savings, compounding over time.

What Are Non-Concessional Contributions?

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Non-concessional contributions are after-tax contributions. These are contributions you make into your super fund from your take-home pay, savings, or any other funds that have already been taxed at your marginal tax rate. 

Because they are made from your after-tax income, non-concessional super contributions are not taxed when they enter your super fund. But keep in mind the non-concessional contributions cap — if you exceed it, you may pay extra tax or be subject to penalties for excess contributions.

Example: Boosting Retirement with Non-Concessional Contributions

Let’s say you’ve already salary sacrificed $15,000 into super and decide to contribute an additional $10,000 from your after-tax savings.

Since this is a non-concessional contribution, it won’t be taxed when it enters your super fund, and that full $10,000 will go straight into your retirement savings. Over time, it can grow in a tax-effective environment, where earnings in super are generally taxed at a maximum of 15%, much lower than most marginal tax rates.

Concessional vs Non-Concessional Contributions: What’s the Difference?

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Understanding the difference between concessional and non-concessional super contributions can help you make smarter choices for your financial year planning.

• Concessional contributions (like employer contributions and salary sacrifice) are before tax contributions and are taxed at 15% (contributions tax) when entering your super.

• Non-concessional contributions, also known as after-tax super contributions, are made from income on which you’ve already paid tax and aren’t taxed again on entry.

So, what is the difference between concessional and non-concessional super contributions? It largely comes down to how and when the tax is applied, and your eligibility to claim a tax deduction.

Are Non-Concessional Contributions Tax Deductible?

No, non-concessional contributions are not tax-deductible. They are made from your after-tax income, so you’ve already paid income tax on the money before contributing it to your super fund. If you’re looking to claim a tax deduction, consider making concessional contributions instead.

Contribution Caps: Know the Limits

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It’s important to be aware of the annual limits for both concessional and non-concessional contributions:

• Concessional Contributions Cap: For the 2024-2025 financial year, the cap is $30,000. If you exceed this cap, any extra contributions may be taxed at your marginal tax rate plus an additional charge.

• Catch-up concessional contributions allow individuals with a total super balance under $500,000 at the end of the previous financial year to contribute more than the standard concessional cap by using unused cap amounts from the previous five financial years, any unused portions from the past five years (starting from July 1, 2018) can be carried forward to increase this year’s cap.

Concessional Contribution Cap
2024-2025	$                                      30,000.00
2023-2024	$                                      27,500.00
2022-2023	$                                      27,500.00
2021-2022	$                                      27,500.00
2020-2021	$                                      25,000.00
2019-2020	$                                      25,000.00
	$                                   162,500.00

• Non-Concessional Contributions Cap: The cap is $120,000 per year. However, if you’re under 75, you may be able to bring forward up to three years’ worth of contributions (up to $360,000) depending on your super balance.

Non-Concessional Contribution Cap
2024-2025	$                           120,000.00
2025-2026	$                           120,000.00
2026-2027	$                           120,000.00
2027-2028	$                           120,000.00

Which Strategy Is Best for You?

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Choosing between concessional and non-concessional contributions depends on your current financial situation and retirement goals.

If your goal is immediate tax savings, concessional contributions like salary sacrificing can be highly effective. They reduce your taxable income while boosting your super.

If you’re making personal super contributions outside of employer arrangements, you’ll need to decide whether you want to do so before or after tax — which determines whether they’re concessional or non-concessional contributions.

If you’ve maxed out concessional contributions or want to top up your super without additional tax, non-concessional contributions allow you to invest more into your retirement savings and benefit from the low tax environment inside super.

You might also consider, what is the benefit of non-concessional super contributions in the long term? While they don’t offer upfront tax deductions, they allow you to grow your retirement savings in a low-tax environment. On the other hand, concessional super contributions provide immediate tax offsets and may suit those on a higher marginal tax rate.

Take Control of Your Super Strategy With Elliot Watson Financial Planning

Understanding the difference between concessional and non-concessional super contributions can have a big impact on your retirement savings, tax position, and long-term financial wellbeing. Whether you’re considering voluntary contributions, deciding how much of your pre-tax income to salary sacrifice, or wondering how to stay within your contribution caps, making informed decisions is key.

Everyone’s circumstances are different — from middle income earners looking for tax-effective ways to build super, to those with more complex situations involving personal contributions or unused caps from a previous financial year.

If you’re unsure about which strategy is right for you, or how to optimise your super contributions without triggering extra tax, we’re here to help.

Contact Elliot Watson Financial Planning today for personalised advice tailored to your goals and circumstances. Let us help you make smarter decisions about your super and secure a more confident financial future.

Disclaimer

The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position, and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author.

Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

The information (including taxation) in this article does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.

Article by Izack Fullter – Financial Adviser