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Concessional Contribution

Pre-tax contributions made to superannuation, including employer contributions and salary sacrifice amounts, taxed at 15% in the super fund. Annual caps apply, with excess contributions taxed at higher rates.

Detailed Explanation

Concessional contributions are superannuation contributions made from pre-tax income, including employer superannuation guarantee (SG) contributions, salary sacrifice contributions, and personal deductible contributions. These contributions are 'concessional' because they're taxed at 15% in the super fund rather than at your marginal tax rate (potentially up to 47%). For the 2023-24 financial year, the concessional contributions cap is $27,500 annually. This includes all employer SG, salary sacrifice, and any personal contributions you claim as a tax deduction. If you exceed this cap, excess contributions are taxed at your marginal rate plus an excess concessional contributions charge, effectively eliminating the concessional treatment. When insurance premiums are paid from superannuation, they're funded from concessional contributions that have been taxed at 15%. This makes super insurance premiums effectively pre-tax, providing a tax advantage over retail insurance paid with after-tax dollars. However, the premiums still reduce your super balance and future retirement savings. For high-income earners (income over $250,000), an additional 15% Division 293 tax applies to concessional contributions, bringing the effective tax rate to 30%. The carry-forward rule allows you to make additional concessional contributions if your total super balance is less than $500,000 and you haven't used your full cap in previous years (up to 5 years).

Common Misconceptions

•The cap only applies to salary sacrifice - it includes ALL concessional contributions including employer SG
•Exceeding the cap just means paying more tax - you also may face additional charges and complexity
•Insurance premiums don't count toward the cap - they're paid from your super balance, which was funded by concessional contributions

Real-World Examples

James earns $110,000 and receives $10,450 in employer SG contributions. He salary sacrifices $12,000 for additional super and $2,000 for insurance premiums, totaling $24,450 in concessional contributions, within the $27,500 cap.
Sarah earns $180,000 with $17,100 employer SG. She salary sacrifices $10,400 to max out her $27,500 cap. Her super fund then deducts $1,200 in insurance premiums from her balance, funded by these concessional contributions taxed at 15%.
Michael exceeds the $27,500 cap with $32,000 in concessional contributions. The excess $4,500 is included in his assessable income, taxed at his 37% marginal rate (instead of 15%), and he pays an excess concessional contributions charge, resulting in approximately $1,980 in additional tax.

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Related Terms

Explore related insurance concepts

Superannuation Insurance
Insurance coverage held within a superannuation fund, with premiums paid from super contributions. This includes default cover provided by many super funds and voluntary additional cover members can elect.
Salary Sacrifice
An arrangement where you forgo part of your pre-tax salary in exchange for benefits, such as insurance premiums paid by your employer. This can provide tax advantages by reducing your taxable income.
Tax Component (Super)
The portion of a superannuation benefit derived from concessional (pre-tax) contributions and taxable earnings. This component may be subject to tax when paid as a benefit, particularly to non-dependants.
Cost of Insurance (in Super)
The premiums deducted from your superannuation balance to pay for insurance cover held within your super fund. These costs reduce your retirement savings but are paid from pre-tax contributions.

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