Concessional contributions are payments made into your super fund before tax. These are the payments made by your employer as well as any salary sacrifice payments you make to your super fund.
Cap on concessional contributions
There is a also a cap on the concessional contributions you can make each financial year. If you go over the cap, you may have to pay extra tax. The cap is currently $25,000 a year.
Once the concessional contributions are in your super fund, for most people the contributions are taxed at 15%, instead of your marginal income tax rate. There are two exceptions to this rule.
Exception #1: Low income earners
If you are a low income earner (adjusted taxable income up to $37,000) you will automatically receive a low-income super tax offset (LISTO) payment to your super fund.
The LISTO payment is 15% of your total concessional (pre-tax) super contributions for an income year and is capped at $500. The ATO pays this money directly into your super account, provided your super fund has your TFN.
It is important you have provided your TFN to your super fund, otherwise you will not automatically receive this payment.
Exception #2: High income earners
From 1 July 2017, high income earners (income for surcharge purposes above $250,000 – a similar calculation used by the ATO for calculating income for Medicare levies), pay a Division 293 tax.
Division 293 imposes an additional tax of 15% on concessional contributions so that concessional contributions are effectively taxed at 30%.
Why? The ATO imposes this additional tax on high income earners to bring the tax concession back to an amount in line with the average.
As a high income earner, your marginal tax rate is higher than an average income earner. If you had made concessional contributions to your fund without the Division 293 tax, you would receive a larger tax concession than an average income earner.
Find out more
About superannuation contribution types
General advice disclaimer
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