Non-Concessional Super Contributions

When you make personal contributions to your superannuation fund (otherwise known as voluntary contributions), broadly speaking there are two main kinds of contributions:

Concessional contributions (before tax contributions)

Concessional contributions are voluntary contributions you make into your super fund before tax, and which are subject to a tax rate of 15%.

Non-concessional super contributions (after-tax contributions)

Non-concessional contributions are voluntary contributions which you deposit into your superannuation account using your post-tax income, which are not subject to taxation within the fund as you have already paid tax on the savings or income with which you make the contributions.

These contributions exist so that you don't pay extra tax, however as we will see, if you go over a certain amount when making these personal contributions you might have to pay extra tax, so it is important to know what the caps are for any given year.

Non-concessional contribution caps

Starting from 1 July 2021, the non-concessional contributions cap has been increased to $110,000 due to indexation in accordance with the Average Weekly Ordinary Time Earnings (AWOTE). Compared with the concessional contributions cap, the non-concessional contributions cap is a higher contributions cap which means it adds a lot more to your retirement savings via super. Contributing more than this amount may result in additional tax obligations. For the period between 1 July 2017 and 30 June 2021, the non-concessional contributions cap was $100,000. However, your cap may vary depending on certain factors, such as if you're eligible for bring-forward arrangements, or if your total super balance exceeds the general transfer balance cap, which was $1.6 million from 2017-2021 and $1.9 million from 1 July 2023.

When you withdraw funds from your super and reinvest them back into your super, it counts as a new non-concessional contribution.

Additionally, if you have multiple funds, the sum of all non-concessional contributions made in a financial year to each fund counts towards your cap.

ATO can not provide personal financial advice. They can inform you about the excess contributions and provide guidance on your options for dealing with the excess amount. This could include withdrawing the excess contributions or paying additional tax, which is known as the excess contributions tax.

It's important to note that you must also lodge a tax return for that year if you exceed your cap.

Types of non-concessional contributions

Various non-concessional contributions include:

• After-tax income contributions made by you or your employer on your behalf
• Spouse contributions, that is contributions made by your spouse to your super fund. If your spouse contributes to your super fund and you earn a low income, your spouse can claim a tax offset. This tax offset applies to the first $3,000 of spouse contributions and can result in a maximum benefit of $540.
• Personal contributions that you haven't claimed or been authorised to claim as an income tax deduction
• Excess concessional (before-tax) contributions that haven't been released from your super fund
• Contributions that exceed your capital gains tax (CGT) cap amount
• Retirement benefits that you withdraw from your super fund and reinvest in the super fund without claiming or being authorised to claim an income tax deduction
• Contributions made for you by someone else if you're under 18 and the contributor isn't your employer
• Life insurance premiums and fund fees, in some cases. It's important to take these into account when planning your contributions

Please note that some contributions may not be accepted by your super fund, depending on your age and work status.

Exclusions

The following contribution types are not included in your non-concessional contributions cap:

• Personal injury payments, also referred to as structured settlement contributions
• Contributions that you choose to allocate towards your capital gains tax (CGT) cap, as long as they have not exceeded your lifetime limit
• Downsizer contributions sourced from the proceeds of selling your home
• Re-contribution of COVID-19 early release superannuation amounts

However, please note that these contributions are only exempt if you meet all the conditions. To exclude them, you need to provide your fund with a relevant form before or when you contribute.

Government co-contributions are also not included in non-concessional contributions. You don't need to take any action to have these excluded.

Individuals with a defined benefit interest

If you belong to a defined benefit fund, you typically have to make contributions that affect your defined benefit interest, and these usually count towards your non-concessional contributions cap, even if your employer contributes on your behalf.

If you are unsure which contributions are non-concessional, it is advisable to contact your fund.

Even if your non-concessional contributions cap is nil (because your total super balance equals or exceeds the general transfer balance cap at the end of the previous financial year), you may still be required to make compulsory non-concessional contributions under an industrial or other workplace agreement. In this case, these contributions will be excess non-concessional contributions and may not be releasable, depending on your fund's rules.

If your total super balance is below the general transfer balance cap, these compulsory contributions may not cause you to exceed your non-concessional cap, but they may restrict your capacity to make other non-concessional contributions without incurring additional taxes.

If you have excess contributions that can't be released from any of your super funds, you will be charged excess non-concessional contributions tax, which you must pay out of your own pocket.

As defined benefit funds can have unique regulations, you must contact your fund to understand your options.

To avoid exceeding your non-concessional contributions cap, you may:

• terminate your contributions
• lower your contribution rate
• make salary sacrifice contributions, converting them into concessional contributions. Note, you cannot do this without your employer's approval

Reducing your contributions to nil or below specific thresholds advised by your fund may impact your defined benefit and other fund-provided benefits, such as insurance. Moreover, making these contributions as salary sacrifice payments may result in you exceeding your concessional contributions cap, so you must evaluate the implications thoroughly.

Example: excess non-concessional contributions and defined benefit funds

Let's consider the case of Patrick. As of 30 June 2019, Patrick's total super balance is $1.65 million, which means his non-concessional contributions cap for the 2019-20 financial year is reduced to zero.

However, as a member of a defined benefit fund, Patrick is required to make non-concessional contributions to his super fund during the 2019-20 financial year. As his non-concessional contributions cap is nil, all his mandatory contributions will be considered as excess non-concessional contributions.

The Australian Taxation Office (ATO) receives Patrick's individual tax return on 25 September 2020, as well as his fund's annual contribution report on 30 October 2020. Subsequently, the ATO issues Patrick with an excess non-concessional contribution determination.

Patrick chooses to release the excess amount from his only fund, but unfortunately, his fund denies the release as he is a member of a defined benefit fund and the fund is not required to action the release authority.

The ATO informs Patrick that the excess amount cannot be released and issues an excess non-concessional contributions tax assessment.

Patrick now has 21 days to pay this liability using his personal funds.

Example: excess concessional and excess non-concessional contributions and defined benefit funds

David is a participant in a defined benefit fund and his employer contributes on his behalf. These contributions are usually considered as non-concessional contributions, but David has opted to have them salary sacrificed as concessional contributions. During the 2017-18 financial year, David's concessional contributions exceed his cap by $5,000, and he receives an excess concessional contributions determination. However, he does not take any action and leaves the excess concessional contributions in his super account.

David is subject to the top marginal tax rate in 2017–18. Therefore, his excess concessional contributions are taxed at 47% (including the Medicare levy). David receives an offset of 15% for the concessional contributions tax.

David's total super balance at 30 June 2017 was above $1.6 million, which means his non-concessional contributions cap for 2017-18 is zero. Therefore, David's excess concessional contributions also count as excess non-concessional contributions.

Since David is a member of a defined benefit fund, he cannot release the excess non-concessional contributions amount. As a result, he must pay excess non-concessional contributions tax at a rate of 47%, in addition to the 47% income tax paid on the same contributions when they were excess concessional contributions. This means that a total of 94% tax has been levied on these contributions.

This case illustrates the importance of carefully considering how you make additional contributions to your super, as David's decision to go for a salary sacrifice arrangement for his mandatory employer contributions led to the contributions being taxed at 94%. If he had not made this arrangement, the same contributions would have been taxed as excess non-concessional contributions only at 47%.

Compensation and your non-concessional contribution cap

If your super fund receives compensation due to inappropriate financial advice or when fees were paid but no advice was provided, it may include a refund or reimbursement of adviser fees, compensation for lost earnings, and an interest component. Whether this compensation counts as a contribution depends on the circumstances under which it is received, such as whether the fund or the individual engaged the financial service provider and has a right to compensation.

If the compensation is paid to your super fund and allocated to your account, it will count as a non-concessional contribution in the financial year it is received. However, if you provided a valid notice of intent to claim a deduction and it is allowable as a deduction, it will be a concessional contribution to the extent covered by the notice.

Timing of contributions

It's crucial to note that for the financial year, your super contributions are only counted when they're received by your fund, not when they're sent.

If you aim to have all your contributions counted towards this financial year, make sure your fund receives them by the 30th of June.

To prevent exceeding the non-concessional contributions cap and incurring additional tax, it's essential to keep a record of the amount of contributions and the date your contributions are received by your super fund.

Working out your non-concessional contributions cap

The current limit for annual non-concessional contributions is $110,000, which is subject to change through indexation. If there are any updates to this information, the Australian Taxation Office (ATO) will provide them accordingly and we will update this article.

Your own non-concessional cap may be higher or lower

If your total super balance at the end of the previous financial year is equal to or exceeds the general transfer balance cap of $1.6 million (applicable from 2017-2021) or $1.9 million (applicable from 2023-2024), your non-concessional contributions cap will be zero for the current financial year.

However, if you meet certain eligibility criteria, you may still be able to access the bring-forward arrangement, which allows you to bring forward up to one or two years' worth of your annual non-concessional contributions cap from future years. This means you can make contributions up to two or three times the annual cap amount during the bring-forward period. As of the 2022-23 financial year, if your total super balance is equal to or exceeds $1.7 million, you are not eligible for the bring-forward arrangement.

How to view your non-concessional contributions cap information

To manage your non-concessional contributions and bring-forward arrangement, you can use ATO online services, which can be accessed through myGov.

To access these services, you need to log in to ATO online services and select the Super option. From there, you can navigate to Non-concessional contributions.

However, please note that there may be some delay in receiving the latest information in ATO online services due to reporting timeframes, particularly for SMSFs. If you need the most up-to-date information, you should contact your super fund directly.

Bring-forward arrangements

You may qualify for the bring-forward arrangement if you make contributions exceeding the annual non-concessional contributions cap. This option lets you use future year caps without incurring additional taxes.

The eligibility criteria for the bring-forward arrangement take into account your age and the total super balance at the end of the previous financial year.

Age of eligibility for non concessional contributions to your super

1 July 2022 and later years

You may be eligible to make non-concessional contributions of up to three times the annual non-concessional cap in a financial year if you are under 75 years of age at any time during that year.

However, if you are 75 years or older, your super fund may only be able to accept employer contributions and downsizer contributions.

Example: eligible for the bring-forward arrangement

Cameron, who has a total super balance of $800,000 at the end of the 2021-22 financial year, is 74 years old as of 1 July 2022, and has a non-concessional contributions cap of $110,000 for the 2022-23 financial year. He is eligible for the bring-forward arrangement due to his age.

Cameron made two non-concessional contributions to his super fund during the financial year - $75,000 in October 2022 and $75,000 in April 2023. As a result, he has triggered the bring-forward arrangement.

Total super balance

Beginning from 1 July 2017, your total super balance has an impact on the amount of the non-concessional contributions cap that you can bring-forward and also determines whether you have a 2-year or 3-year bring-forward period. Your total super balance is calculated at the end of 30 June of the financial year before the year in which you made the contributions that triggered the bring-forward.

To access the non-concessional bring-forward arrangement for the 2022–23 financial year and later years, you must meet the following conditions:

• you must be under 75 years old for at least one day during the triggering year (the first year)
• you must contribute more than the annual cap of $110,000 from 2021–22
• you should not be in an active bring-forward period
• you must have a total super balance at the end of 30 June of the previous financial year that is less than the general transfer balance cap ($1.7 million from 2021–22, $1.9 million from 2023–24)

For the 2020–21 and 2021–22 financial years, to access the non-concessional bring-forward arrangement, you must meet the following conditions:

• you must be under 67 years old for at least one day during the triggering year (the first year)
• you must contribute more than the annual cap ($100,000 from 2017–18; $110,000 from 2021–22)
• you should not be in an active bring-forward period
• you must have a total superannuation balance at the end of 30 June of the previous financial year that is less than the general transfer balance cap ($1.6 million from 2017–18; $1.7 million from 2021–22); and you must have a capacity greater than the annual non-concessional contributions cap ($100,000 from 2017–18; $110,000 from 2021–22). For example, for 2020–21, your total super balance at the end of 30 June 2020 must be less than $1.5 million

For the 2019–20 financial year and earlier years, the age condition was 65 years of age.

How the bring-forward arrangement works

From 1 July 2021

The ability to bring forward the non-concessional contributions cap depends on the total super balance on 30 June of the previous financial year. The following are the allowable amounts:

• If, by 30 June of the previous year, your TSB was under $1.68 million, you can give up to $330,000 over 3 years. So, for the 2023-24 year, if your TSB on 30 June 2023, was under $1.68 million, you can still give up to $330,000 over 3 years.
• If, by 30 June of the previous year, your TSB was at least $1.68 million but under $1.79 million, you can give up to $220,000 over 2 years.
• If the total super balance is $1.79 million or above, then the bring-forward arrangement is not allowed (i.e., nil or $0). You can only give up to $110,000 for that year.

These limits are based on the annual non-concessional contribution cap of $110,000 and the general transfer balance cap of $1.9 million.

The table below shows the allowable amounts for the first year of the bring-forward arrangement.

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Table 3: Bring-forward period

How to view your bring-forward arrangement

It is recommended that you access your ATO online services account to:

• Determine whether or not you have activated a bring-forward arrangement
• Assess the viability of making a substantial contribution

To access this information, you must first log in to ATO online services and select the Super option. From there, navigate to the Bring-forward arrangement tab.

Please note that ATO online services may not always have the most up-to-date information, particularly for Self Managed Super Funds (SMSFs), due to the reporting timeframes of funds. To obtain the most current details, you should consult with your super fund.

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Disclaimer

Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.