Super contributions - which is better concessional or non concessional contributions?

Could someone please explain or point me in the right direction in regards to concessional and non-concessional super contributions. I understand what each of them mean. How do I determine which optional is more beneficial to take?

I will likely have CGT to pay this financial year and am exploring if putting money into super will reduce my taxable income.

 

concessional are deductible, but limited to $27k per year generally. they are taxed at 15% on the way in and generally not taxed on the way out.Generally they will form back of the tax free component

Non-concessional are not deductible, to the individual. Generally limiited to $110,000 per year. They must be funded with taxed money so they are not taxed on the way in, but could be taxed on the way out sometimes. Generally they will form part of the taxable component.

Which is better will entirely depend on the circumstances.

 

It depends on your taxable income.

If you earn $190k pa and put $10k into super, instead of paying 45% on that $10k you only pay 15%.

If you earn $10k pa and put $10k into super, instead of paying 0% you pay 15% (so a non-concessional contribution would be better here)

Now there's a lot of grey area in between, and you need to figure out which leaves you better off (remembering that you have 5 years of cap space to play with, minus what you and your employer (if you have one) has already contributed).

 

Hi there old saying but seek advice - concessional are pre tax and non concessional are after tax. There are a number of strategies to use to maximise your deductions including:
1. Concessional contributions inc personal contributions
2. Use of catch up concessional contributions
3. Contribution reserves

Again, your accountant will be able to point you in the right direction and get in early to ensure you implement strategies in the relevant tax year.

Hope that helps.

Cheers Ivan

 

Thanks for the replies. Will definitely get some advice and direction from the accountant.

 

Often overlooked.....Concessional may affect how a adult beneficiary who is not a spouse etc is taxed on death of the member where non-concessional will not. However if the tax elements are already a issue the non-concessional may just dilute the problem and not prevent it.

This is an example of where financial advice (must be licensed) may make a difference. Accountants cannot discuss this. Its like seeking dental advice from your GP

 

Hi @Terry_w

My "my gov" acc shows xxxx amount that I can pay into my super does it mean when I will transfer from my bank to the smsf acc with clear description as CC- I have to pay 15% or the 15% kicks in at EOFY when doing the returns etc.. ?

 

Not just a matter of transferring money. Get some proper advice

 

Best to get some advice on what your contribution caps are and then you can see what options you have as per Ivan's comments above.

Also note that Terry's comments are the wrong way around, concessional contributions form the taxable component and non concessional contributions form the tax free component.

 

The fund calculates and pays the tax. It can also trigger 30% rather than just 15% tax.
The ATO records are not live and should be considered but arent a record of the unused cap. A employer can pay catch up contributions on 29th June or even go outside the process of paying 28 days after each quarter (or whatever they do) and pay the last quarter early. Or a second job, former employer caught not contributing who then pays, change of job towards year end etc.

Yes NCC are a tax free element in the fund. While it is preserved this means that part isnt subject to tax say on death if a adult child beneficiary becomes entitled to that part of super. The concessional element is. The future earnings of the tax free element will also be a untaxed element. Tax free elements are estate planning issue for theat reason. No issue if left to a spouse. Death poses more a issue.

 

Hi @Paul@PAS , I am surprised to read about the ATO records, so how do I find out if its correct (live) or not?

My understanding was that whatever amout it was showing under my profile + this years cap!

 

No. The cap is based on each fund reported contributions which occurs after year end as part of their tax lodgement. Its not uncommon to find disparity between ATO notional balances and reality. Depends on employer, STP use and much more. The ATO data is a construct that is amended when real data arrives. And for some SMSFs that can be almost a year after the event especially where ESA and clearing house processes were ignored.

There can also be future dated issues eg pay review in January will imapct remaining cap through to 30 June. MY advice to people seekingto max caps it to exercise patience. Consider this in June when you can check fund contributions, unpaid employer amounts etc. Makinga contribution of the gap is then OK but then wait to claim a deduction and if its excessive it gives time to max the concessional and the difference could be non-concessional. And its often ignored but if a taxpayer does claim a concessional sumthat is too high they can amend it down before lodging their tax to avoid a cap issue.

The ATO catch up cap data will be reliable unless you have a SMSF which lodges late.

 

I had to google this as it doesn't make sense (terry's comment) - thanks for pointing out that I am not losing my mind in determining what it taxable component vs non-taxable.