Whenever money enters your superannuation fund it is classified as either a concessional or non-concessional contribution.
Concessional contributions are paid into your superannuation account by ways of Employer Compulsory Contributions and Salary Sacrifice. Non-concessional contributions are any funds paid into your superannuation account that come from your after-tax income.
When concessional contributions are paid into your superannuation, they are taxed at the concessional rate of 15% unless of course if you are lucky to earn over $250K in which the tax rate is 30%. This type of contribution is capped up to $25k and as of 1 July 2020 you can also use the remainder of any unused cap in previous years (up to five years from 1 July 2019).
Personal Deductible Contributions are made by contributing to your superannuation fund usually by making a transfer from your personal account or a Bpay transaction. These enter the fund as a non-concessional contribution and remain that way until you notify your fund with a Notice of Intent to Claim a Tax Deduction. Once you have notified the fund the contribution becomes a non-concessional contribution and you are able to put this in your tax return to reduce your assessable income and reduce your tax. It is important to remember that the Notice of intent to claim must be completed before the tax return is lodged and that the contribution will fall under the concessional contribution cap.
Remember if you exceed the concessional cap of $25k per annum or the non-concessional cap of $100k per annum you may be required to pay more tax.
Well say you earn $80k per annum and you make a $10,000 concessional contribution into your super. Once the 15% ($1,500) superannuation tax has been taken out your fund will receive $8,500.
Now say you had taken the funds as income and not contributed to super then you would have paid the marginal tax rate of 32.5% ($3,250) and only received $6,750 in the bank.
The other benefit is that any growth or earnings on funds invested inside your superannuation (concessional & non-concessional) are only taxed at the concessional rate of 15%.
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Terrell Hyman the Director and Principal Advisor at Trl Financial Solutions.