All about non-concessional contributions

A non-concessional contribution is a voluntary extra payment you make into your superannuation, beyond what your employer contributes on your behalf.

This might be money you’ve received from an inheritance or the sale of a property, or it might just be some extra money you have saved.

Why would you want to make a non-concessional contribution? The main reason is to have more money for when you retire, and to take advantage of the range of benefits that come with adding extra money to your super balance.

The first benefit? You won’t pay tax on non-concessional contributions. The money goes from your hands straight into your super fund’s hands, tax free.

The other benefits? Making voluntary contributions can also make you eligible for other incentives, including:

•   The Government’s co-contribution - where the Government may add extra money to your super balance if you make voluntary contributions

•   The spouse contribution - where you can claim a tax offset by contributing to your spouse’s super balance; or

•   The bring forward contribution - great if you want to make a voluntary payment to your super that carries across a few years.

The other big advantage to non-concessional contributions is that you’re able to change the environment or circumstances under which your money is taxed – potentially saving you lots in the long run.

Say you’re working, and you’ve got some money in the bank, earning interest. The extra interest you’re earning is being taxed at your normal personal tax rate, usually anywhere from 35-40%. This means you’re losing at least a third of that interest you’ve earned in tax.

If you moved that same amount of savings into your super fund (assuming you’re eligible to do so) it would still earn interest for you, but instead of being taxed at your normal rate, it would only be taxed at the standard super fund tax rate, which is 15%. Straight away, you’re paying a whole lot less tax on the same amount of money if it’s sitting in your super fund than if it’s in your day-to-day savings account.

The news gets even better. While super funds pay tax of 15% on earnings and contributions, they only pay 10% on capital gains (a rise in the value of an asset, like a property, or shares) so any investments like these you hold within your super fund for a long time incur even less tax than cash investments, which is great.

If we set things up in the right way, when you get to retirement, the tax rate for most of your super should go to zero, which is the lowest tax rate you can get. That’s why putting extra money into your super through non-concessional contributions is the best way to go.

If you want to find out more, check out our Blog, YouTube and Facebook for even more information, or give us a call today for personalised advice.

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