Superannuation contributions can be either concessional or non-concessional. With concessional superannuation contributions the payer of the super will be claiming a tax deduction for the payment. With non-concessional superannuation contributions no tax deduction is available.
Concessional superannuation contributions include:
- Employer contributions – This includes both super guarantee contributions and employee salary sacrifice contributions.
- Personal contributions claimed as a tax deduction by a self-employed person.
For 2015/16 the general concessional superannuation contribution cap is $30,000. For those aged 49 years or over the concessional superannuation contribution cap is $35,000. It is not tax effective to make contributions in excess of the contribution caps as the excess contributions are refunded to the taxpayer and taxed at the taxpayer’s marginal tax rates.
Making the maximum concessional superannuation contributions annually is very tax effective as the employer or self-employed are receiving a tax deduction for the contributions made. The tax savings result as the concessional superannuation contributions are only taxed by the super fund at 15%, whereas the employer or self-employed will be in a higher tax bracket (up to 47%), so there can be up to a 32% tax saving on the contributions made.
Where the taxpayers taxable income is greater than $300,000 the tax payable on the super contributions increases from 15% to 30%. In this case the maximum tax savings on the contributions made is reduced to 17%.