Non-Concessional Contributions

Alright, let’s talk about non-concessional contributions – sounds fancy, but they’re really just a way to pump up your super without getting immediate tax breaks.

What Exactly Are Non-Concessional Contributions?

Non-concessional contributions are the contributions from your personal savings you put into your super fund without asking for any tax deductions. Usually, you make these from your own bank account. In short, non-concessional contributions are after-tax cash you’re putting into superannuation.

The Non-Concessional Contribution Age Limit

Good news, you can make non-concessional contributions as long as you’re under 75. So, you’ve got plenty of time to top up your super.

The Non-Concessional Contribution Cap

Each year, you can contribute up to $120,000 into super without triggering any tax event. But here's where it gets interesting: If you have the funds, you can bring forward up to two extra years’ worth of contributions. That means you could potentially contribute $360,000 in one go over three years. However, there's rules, if you’re under 75 and your total super balance is less than $1.9 million, you’re good to go. If you’re above that threshold, though, you can’t make any more non-concessional contributions (until your balance drops below $1.9 million).

Do Non-Concessional Contributions Reduce Taxable Income?

Nope! Non-concessional contributions don’t reduce your taxable income. You don’t get a tax deduction for them. But here’s why they still work. They allow your super to grow within a 15% tax environment on earnings. So, while they don't lower your tax bill now, they can help your super grow faster compared to investing outside of super – where you might pay more tax.

Tax on Non-Concessional Contributions?

There is no tax on non-concessional contributions. You can throw as much as you like into your super, and no one’s taking a cut (limited to caps of course). Even when you withdraw it, it's all tax-free. Plus, the money you’ve contributed will increase the tax-free component of your super, which could help reduce any tax on your death benefits.

Non-Concessional Contribution Bring-Forward Rule

Here’s where things get interesting. If you’re under 75, you can use the bring-forward rule to load up your super by up to two years' worth of non-concessional contributions. This means you can contribute a whopping $360,000 over a three-year period without being hit by the usual annual $120,000 cap.

For example, you could contribute $360,000 in one go this year and then sit back and relax for the next two years. Or, you might contribute $240,000 in year one, $120,000 in year two, and nothing in year three. The bring-forward rule kicks in automatically if you exceed the annual cap in your first year.

The Transfer Balance Cap and Non-Concessional Contributions

Here's a key thing to keep in mind: If your total super balance exceeds $1.9 million at the end of June in the previous financial year, you're not allowed to make any more non-concessional contributions. Also, the bring-forward rule will only apply if your contributions won't push you past that $1.9 million cap. Here’s a handy table to help guide you:

Total Super Balance (on 30 June)	Non-Concessional Cap for the First Year	Bring-Forward Period Permitted
Less than $1.66M	$330,000	3 years
$1.66M to less than $1.78M	$220,000	2 years
$1.78M to less than $1.9M	$110,000	No bring-forward period
$1.9M or more	$0	N/A

What Happens If You Go Over the Cap?

If you get a little carried away and contribute more than the $120,000 cap (or $360,000 with the bring-forward rule), the ATO will hit you with an excess contribution tax of 47% on the excess. Not very nice hey.

But don’t worry, the ATO gives you options:

1. Withdraw the excess and 85% of the earnings on it.

2. Leave it in your super, but that 47% tax will apply. So, not ideal!

   
   

You have 60 days to decide. If you don't, the ATO will refund the excess unless your super fund says otherwise.

The Benefits of Non-Concessional Contributions

Why bother with non-concessional contributions? You’re basically putting your wealth into a tax-efficient environment. All investment earnings inside super are taxed at just 15%, which is often way lower than the tax you’d pay if you invested that same money personally. Additionally, when you finally retire and start taking an income stream, all your super earnings are tax-free. Sounds pretty good, right?

Other perks include potential access to the superannuation co-contribution, the spouse contribution tax offset, and the chance to lower your death benefit tax. These benefits can really add up over time.

The Drawbacks of Non-Concessional Contributions

The main downside is that you can’t touch those contributions until you reach your preservation age (which starts at 60). Also, unlike concessional contributions, you can't claim a tax deduction for non-concessional ones. That’s the trade-off – you’re investing after-tax money into a super tax haven. But despite these drawbacks, non-concessional contributions are still a fantastic retirement planning strategy. They help you build your super in a tax-effective environment and give you a steady income stream once you’re retired.

Why Bother with Non-Concessional Contributions?

So, why would you bother? Simple: You’re investing in a tax-friendly environment. All your earnings, including capital gains, are taxed at a maximum of 15% in super. For most of us, that’s much lower than our regular tax rate, so it’s a good way to supercharge your savings.

Once you retire and start drawing an income from your super, it’s even better – your pension income is tax-free. And hey, you might even qualify for things like the co-contribution or the spouse contribution tax offset.

So, while non-concessional contributions may not give you an immediate tax break, they do set you up for some solid long-term benefits.