Looking to understand how concessional contributions work in a self-managed superannuation fund (SMSF)? This guide covers everything you need to know, including what concessional contributions are, who is eligible to make them, how to claim a tax deduction, and more.

What are Concessional Contributions?

Concessional contributions are contributions to your super that are taxed at a lower rate (15%) compared to other taxable income. There are three types of concessional contributions: employer contributions, salary sacrifice contributions, and personal concessional contributions.

Employer contributions are made at 10.5% of your salary and are the most common type of concessional contribution. Personal concessional contributions, on the other hand, are voluntary contributions that you make to your SMSF and claim as a tax deduction in your personal tax return.

Eligibility for Personal Concessional Contributions

Most individuals under the age of 75 are eligible to claim a tax deduction for their personal concessional contributions. Individuals aged 67 to 74 must meet the work test or work test exemption requirements. Those over 75 can only claim a tax deduction for contributions made before the end of the month following their 75th birthday.

Notice of Intent to Claim a Deduction

To claim a tax deduction, you must provide a notice of intention to claim a deduction to your SMSF. This notice must be provided before the SMSF’s annual return is lodged or during the financial year following the year in which the contributions were made. You will also need to receive a written acknowledgement before the tax deduction can be claimed.

Concessional Contributions Cap

The current concessional contributions cap is $27,500 and applies to both personal and employer contributions. However, if you did not reach the cap in a previous year, you may be able to carry forward the unused amount and contribute more than $27,500 in the following year. This rule only applies to unused contributions starting from July 2018 and has a five-year expiration.

Final words

Understanding how concessional contributions work in an SMSF is important for staying compliant and making the most of your investments. Make sure to consult a financial advisor and visit the ATO website for more information.