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Superannuation: Learning the Lingo

It’s time to talk about all the terms that you are going to hear inside your superannuation fund.

And it is important that you understand these terms because, as I said before, you can’t make informed decisions if you don’t have the right knowledge.

I’ve summarized all of this in My Plain English Glossary of Superannuation Terms – available for free download here.

All right, so let’s get started.

Two of the most common terms you will hear inside the world of super are concessional and non- concessional.

It’s important to understand these terms because there are some limits on how much your fund can receive as concessional and non-concessional contributions.

But what is a Concessional Contribution?

In plain English, it is a contribution to your super fund that is made from your income before it is taxed. These contributions include things like the compulsory super your employer pays and salary sacrificing.

Concessional contributions can be claimed as a tax deduction. Because your wages have been reduced to pay an additional amount into superannuation, your employer effectively has claimed that superannuation as a tax deduction.

Non concessional contributions come from your ‘after-tax’ dollars.

They are those contributions received by your superannuation fund that nobody has claimed a tax deduction for, such as:

  • personal contributions where you have not claimed an income tax deduction
  • contributions your spouse makes to your super fund.

There are other contributions that your fund can receive, such as government co-contributions and downsizer contributions. I talked about the downsizer contribution in a recent video (check it out on 123 TV), so I won’t go into that anymore here, other than to say that your downsizer contribution doesn’t use up part of your contributions cap.

Knowing your concessional from your non-concessional can help you make the most of your super.

Why?

Well, because once in super, concessional contributions are only taxed at 15% – which for a lot of people is lower than the usual tax rate they’ll pay on their income (up to 47%).

So, if a hundred dollars goes into your Super, $15 will go to the Tax Office and $85 your Superfund uses for investment. If it is a concessional tax contribution.

Note, there are limits on how much your fund can receive at those concessionally taxed rates of 15%. These contributions are currently capped at $27,500.

It’s important to know what makes up concessional contributions, so that you don’t go over that $27,500.

Many people believe that they can put in $27,500 on top of what their employer contributes. This is a myth. The cap is $27,500 in total.

There is a rule that allows you to carry forward (up to five years) those contributions from previous years that you haven’t included, although there are some limits on when. The main one is that your super balance needs to be less than $500,000.

If you’re not quite sure if you can use those carry forward contributions as part of your current year concessional contributions, just reach out to us here. We can investigate and find out if you are eligible to claim.

Okay, so back to non-concessional contributions. Remember, they’re the ones that have come from your after-tax income and you are not claiming a tax deduction for.

Since July 1, 2022, the non-concessional contributions cap has been $110,000 per year.

There is also a carry forward type rule that’s available for non-concessional contributions, and that’s called a Bring Forward Rule. This allows you to bring forward your next two years of contributions. It does mean though that if you bring forward and claim (and deposit $330,000) into your super fund this year, you won’t be able to make any other non-concessional contributions for the next two years.

Downsizer contributions are excluded from the non-concessional contributions cap. And so you can, if you are eligible (and there are some rules around who’s eligible and who’s not eligible) put that in to your super fund and still access this bring forward rule for your non concession.

The other terms that you might hear getting bandied around at the moment:

Stapled Superannuation Fund

This is a new thing that came in on November 1, 2021. And it means, as implied, that your super fund is stapled to you and becomes your main fund.

It means that when you change jobs your super fund now comes with you.

Lots of people have multiple funds because they have had multiple employers over time. And of course, that means paying multiple fees and multiple administration charges, which diminishes the value of your total superannuation. So, the Tax Office has now stapled a fund to you and it’s your main fund.

When you change employers, your new employer can request the Tax Office to find out who your stapled fund is (if you don’t give it to them of course) to find out where you want your money to go. This stops them from creating a new fund for you with their default super provider.

So, I think that covers off most of the main terms around superannuation.

To summarise:

  • Concessional contributions are the ones that people have claimed a tax deduction for. You will only pay 15% on these in tax, leaving 85% in your “pocket”.
  • The only time that changes is if you are what the Tax Office call a ‘high income earner’ and you are subjected to a Division 293 Assessment, where the Tax Office will get you to pay an extra 15%.
  • Concessional contributions are capped at $27,500.
  • Non-concessional contributions come from your after-tax dollars.
  • The non-concessional contributions cap is $110,000 per year.

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