What Are Concessional (Before-Tax) Contributions?

Concessional contributions are payments made into your superannuation fund from your pre-tax income. These contributions are taxed at a concessional rate of 15 percent instead of your marginal income tax rate, which for most Australians is significantly higher. They’re called “concessional” because of this tax advantage, making them a key strategy for boosting your retirement savings while reducing your tax liability.

There are three main types of concessional contributions: employer contributions (including the Superannuation Guarantee), salary sacrifice contributions, and personal contributions for which a tax deduction is claimed. Each plays a unique role in your overall retirement plan and can be tailored to fit different income levels and career stages.

Employer Contributions (Super Guarantee)

The Super Guarantee (SG) is a mandatory contribution that your employer must pay into your super account, currently set at 11 percent of your ordinary time earnings. This is the most common form of concessional contribution and forms the foundation of most Australians’ super savings.

Employers are required by law to make these payments at least quarterly. If they fail to do so, the Australian Taxation Office (ATO) can impose penalties and interest. Even if you work casually or part-time, you are generally eligible to receive SG contributions as long as you earn more than $450 in a calendar month from a single employer.

Salary Sacrifice Contributions

Salary sacrificing is a voluntary arrangement where you agree to forego part of your salary in exchange for increased contributions to your super fund. These amounts are deducted from your pre-tax income, reducing your taxable earnings and thereby lowering the income tax you pay.

This strategy is most effective for middle to high-income earners who want to boost their super without significantly affecting their take-home pay. It also allows for greater control over your retirement planning, especially for those aiming to retire early or build wealth more aggressively within a tax-effective structure. The AustralianSuper website provides a helpful guide to setting up salary sacrifice contributions.

Personal Deductible Contributions

These are contributions you make from your after-tax income, but then claim as a tax deduction in your annual tax return. This converts them into concessional contributions for tax purposes. Since July 1, 2017, most individuals under 75 years old can make these types of contributions, even if they are self-employed or unemployed.

This option is useful for people who receive irregular income, such as freelancers, contractors, or those who receive a financial windfall during the year. It allows them to make lump-sum contributions at a time of their choosing and still benefit from the concessional tax treatment.

Annual Concessional Contribution Cap

The concessional contributions cap is the maximum amount you can contribute to your super at the concessional tax rate in a financial year. For the 2024–25 financial year, this cap is $27,500 per individual. This limit applies to the total of all your concessional contributions , including employer SG, salary sacrifice, and personal deductible contributions.

Exceeding the cap can result in your excess contributions being taxed at your marginal rate, plus an excess contributions charge. However, if you go over the cap, you can choose to withdraw the excess amount to avoid double taxation. QSuper outlines how these caps work in more detail.

Carry-Forward Contributions

One significant opportunity available is the “carry-forward” rule. If your total super balance was under $500,000 at the end of the previous financial year, you may be eligible to use any unused portion of your concessional cap from the past five years.

This is especially beneficial for those who have had career breaks, periods of lower income, or other interruptions in making contributions. It allows them to catch up and boost their superannuation more aggressively in years when they have the capacity to contribute more. SuperGuide offers a practical explanation of how to apply this strategy.

Tax Benefits and Strategic Planning

One of the biggest advantages of concessional contributions is the 15 percent tax rate. This is generally much lower than the marginal tax rate for most working Australians, which can be as high as 45 percent.

For example, someone earning $100,000 annually would pay 34.5 percent on part of their income (including Medicare Levy). By salary sacrificing $10,000 into their super, they only pay 15 percent tax on that amount, effectively saving 19.5 percent in tax. Over time, this can significantly increase the amount you accumulate for retirement.

Another strategic benefit is that concessional contributions reduce your assessable income. This can help you stay under various tax thresholds, qualify for family tax benefits, or reduce liabilities like HECS-HELP repayments. For more on the tax implications of super contributions, visit Moneysmart.gov.au.

Important Considerations and Pitfalls

While the tax benefits are attractive, there are a few key considerations to be aware of:

• Contributions must be received by your fund before 30 June to count for that financial year. Processing delays or missed deadlines can result in missing out on tax benefits.
• If you claim a tax deduction for personal contributions, you must submit a “Notice of Intent to Claim or Vary a Deduction” form to your super fund and receive an acknowledgment.
• High-income earners may be subject to Division 293 tax, which imposes an additional 15 percent tax on concessional contributions if their income exceeds $250,000.
• The concessional cap includes all sources, so coordinating with your employer and financial advisor is crucial to avoid unintentional breaches.

Making the Most of Concessional Contributions

The key to maximising the value of concessional contributions lies in planning and consistency. Start early, automate salary sacrifice if possible, and review your cap usage annually. Use tools like the ATO’s myGov portal or your fund’s online dashboard to monitor contributions in real time.

For those nearing retirement, the ability to make large concessional contributions in the years leading up to retirement using the carry-forward rule can significantly boost their retirement readiness.

In summary, concessional contributions offer a powerful and tax-efficient way to build your superannuation. Understanding the rules, limits, and opportunities ensures you can take full advantage of the system, whether you’re starting your career or planning for retirement.

About The Author: Artur Osadchiy

Artur is a Certified Practising Accountant with over 30 years’ experience working as a trusted advisor to 600+ clients across Australia. Based in Melbourne, he started Tax Window with his wife Marina in 2009 and leads the firm’s tax and accounting team. In his free time, Artur enjoys watching the AFL (go Kangas!) and spending time with family.