Concessional (Before-Tax) Contributions

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What Are Concessional Contributions?

Concessional contributions are super contributions made from before-tax income. They are taxed at 15% inside your super fund — typically much lower than your marginal income tax rate. They include:

• Employer SG contributions (12% of ordinary earnings)
• Salary sacrifice arrangements (you agree to forgo part of your salary in exchange for extra super)
• Personal deductible contributions (you contribute after-tax money and claim a tax deduction)

Annual Cap (2025-26 and 2026-27)

The concessional contributions cap is $30,000 for 2025-26, rising to $32,500 from 1 July 2026. This includes all employer SG contributions plus any additional before-tax contributions you make.

If you exceed the cap, excess contributions are added to your income and taxed at your marginal rate — plus an excess concessional contributions charge. It's important to track your total.

Carry-Forward (Unused Cap) Rule

Since 1 July 2019, if your total super balance is below $500,000 (at 30 June of the previous year), you can carry forward unused concessional cap amounts for up to 5 financial years.

Example: If you used only $15,000 of your $27,500 cap in 2020-21, you can contribute an extra $12,500 (indexed) in a future year — as long as your balance stays under $500,000.

This is especially useful for:

• People returning to work after a career break
• Those with irregular income who want to make larger catch-up contributions
• Property sellers wanting to reduce capital gains tax via super contributions

Salary Sacrifice

Salary sacrifice involves your employer contributing extra money to super from your pre-tax salary. Benefits:

• Reduces your taxable income (save on income tax + Medicare levy)
• Contributions taxed at only 15% in super (vs marginal rate up to 47%)
• Simple to set up — just arrange with your employer (usually via a salary sacrifice agreement)

Personal Deductible Contributions (Notice of Intent)

You can make a personal after-tax contribution to super and then claim a tax deduction by lodging a Notice of Intent to Claim a Deduction form with your super fund.

1. Contribute the money to your super fund personally
2. Complete and lodge the notice form (must be done before lodging your tax return)
3. The fund confirms receipt and deducts 15% contributions tax
4. Claim the deduction in your personal tax return

Tax Benefits Summary

• Concessional contributions taxed at 15% inside super vs marginal rate up to 47% (45% + 2% Medicare Levy)
• Maximum tax saving: 47% - 15% = 32% saving on every dollar contributed (up to cap)
• Investment earnings on contributions also taxed at just 15% in accumulation phase
• Earnings in pension phase are tax-free

Division 293 — High-Income Surcharge

If your combined income and concessional contributions exceed $250,000, you pay an additional 15% tax (total 30%) on concessional contributions. This surcharge applies to the lesser of:

• Your concessional contributions, or
• The amount by which your income + contributions exceed $250,000

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How the 15% Tax Compares to Your Marginal Rate

Concessional contributions are taxed at 15% inside your fund — that is the whole point of salary sacrifice. The tax you save is the gap between your marginal rate (plus the 2% Medicare levy) and 15%. On the 2025-26 rates: someone in the 30% bracket saves about 17 cents per dollar, someone in the 37% bracket saves about 24 cents, and someone on the 45% top rate saves about 32 cents per dollar up to the cap.

Worked example: earning $120,000 and salary sacrificing $10,000 a year. Outside super, that $10,000 would cost $3,900 in tax (37% + 2% Medicare levy). Inside super it is taxed at 15% — $1,500 — so the strategy saves about $2,400 a year, while the $8,500 that remains in super compounds for retirement. The trade-off is that the money is locked away until preservation age, and if your income plus concessional contributions exceed $250,000, Division 293 adds another 15%, wiping out most of the advantage.

Action Plan: Before 30 June 2027

1. Check your total super balance — if it was under $500,000 at 30 June 2026, you can use unused concessional cap from 2021-22 onwards under the carry-forward rule.
2. Set up a salary sacrifice arrangement in writing with your employer — most allow you to start or change it at any time.
3. If self-employed or making personal contributions, lodge a Notice of Intent to Claim with your fund before you submit your tax return.
4. Time contributions to arrive by 30 June — contributions received after year-end count toward the next financial year.
5. Watch your cap: add your employer's SG (12% of salary) to your salary sacrifice before assuming you have room under the $32,500 cap for 2026-27.