Concessional Contributions

Superannuation remains one of the most tax-effective ways for Australians to build wealth for retirement. Through employer contributions, salary sacrifice arrangements, and personal deductible contributions, individuals can grow their retirement savings in a concessionally taxed environment. However, as contribution rules have evolved over the years, understanding how concessional contributions are taxed — especially for higher income earners — has become increasingly important.

Many Australians are surprised to discover that additional taxes may apply once income exceeds certain thresholds. Others unintentionally exceed their contribution caps because they misunderstand how employer contributions and salary sacrifice arrangements work together. Understanding these rules is essential for avoiding unexpected tax liabilities and making the most of available superannuation opportunities.

What Are Concessional Contributions?

Concessional contributions are contributions made into superannuation that are generally taxed at a concessional rate of 15% within the super fund. These contributions typically include employer Superannuation Guarantee (SG) contributions, salary sacrifice contributions, and personal contributions claimed as a tax deduction.

Because concessional contributions receive favourable tax treatment, the government limits how much can be contributed each financial year before additional tax consequences apply.

For the 2025/26 financial year, the standard concessional contribution cap is $30,000. This cap applies regardless of age and includes all concessional contributions made across all superannuation funds.

Understanding Division 293 Tax

Division 293 tax is an additional tax designed to reduce the tax concessions available to higher income earners. While concessional contributions are usually taxed at 15% within the super fund, individuals with higher incomes may pay an extra 15% tax on part or all of their concessional contributions.

The Division 293 threshold is currently $250,000.

If a person’s combined income and concessional contributions exceed this threshold, the additional tax applies to the lower of:

• the amount above the $250,000 threshold, or
• the individual’s concessional contributions within the contribution cap.

This effectively increases the tax rate on affected concessional contributions from 15% to 30%.

For example, if an individual earns $240,000 and has concessional contributions of $30,000, their total income for Division 293 purposes becomes $270,000. Since they exceed the threshold by $20,000, Division 293 tax applies only to that excess amount. The additional tax would therefore be 15% of $20,000, resulting in a $3,000 liability.

However, if the same individual earned $300,000 and still made concessional contributions of $30,000, they would exceed the threshold by $80,000. In this case, the additional tax would apply only to the concessional contributions amount of $30,000, resulting in Division 293 tax of $4,500.

Although many high-income earners dislike the additional tax, concessional contributions often remain tax effective because the combined 30% tax rate is still lower than top personal marginal tax rates.

Excess Concessional Contributions

Another important issue arises when individuals exceed their concessional contribution cap.

Excess concessional contributions are generally included in the individual’s personal taxable income and taxed at their marginal tax rate, although a 15% tax offset is usually available to recognise contributions tax already paid within the super fund.

Importantly, Division 293 tax does not apply to excess concessional contributions. Only concessional contributions within the cap are subject to the additional Division 293 tax calculation.

This means contribution planning should be carefully managed throughout the year, particularly for individuals receiving both employer contributions and salary sacrifice amounts.

Employer Contributions and Super Guarantee Rules

Employer contributions form the foundation of Australia’s superannuation system. Employers are generally required to contribute a percentage of an employee’s ordinary time earnings into superannuation under the Superannuation Guarantee system.

The SG rate increased to 11.5% from 1 July 2024 and increased again to 12% from 1 July 2025 as part of the government’s long-term superannuation reforms.

Importantly, since 1 July 2022, most employees are entitled to SG contributions regardless of how little they earn each month. Previously, employees earning less than $450 per month were excluded from compulsory SG contributions.

Changes introduced from 1 January 2020 also significantly altered salary sacrifice arrangements. Prior to these reforms, employers could sometimes use salary sacrificed amounts to satisfy part of their SG obligations. This is no longer permitted.

Today, employers must calculate SG contributions based on an employee’s pre-salary sacrifice earnings. Salary sacrifice contributions are treated as additional concessional contributions and cannot reduce the employer’s mandatory SG obligations.

This change has created unexpected problems for some employees who unknowingly exceed their concessional contribution caps after entering salary sacrifice arrangements.

Stapled Super Funds

The introduction of “stapled super funds” has also changed the way employer contributions operate.

Under the government’s Your Future, Your Super reforms introduced from 1 November 2021, an employee’s existing superannuation fund can become their stapled fund. When employees change jobs, employers are generally required to contribute to that existing stapled fund unless the employee actively chooses another fund.

This reform was designed to reduce the creation of multiple unintended super accounts and minimise unnecessary fees and insurance costs.

For SMSF members, this means their SMSF can potentially continue receiving employer contributions automatically when changing employment.

Payday Super Reforms

The government has also proposed significant changes to the timing of employer super contributions.

Under the proposed “Payday Super” reforms expected to commence from 1 July 2026, employers will be required to pay super contributions at the same time as salary and wages rather than quarterly. A seven-day processing window is expected to apply.

The reforms aim to improve transparency, reduce unpaid superannuation, and ensure retirement savings are invested earlier and more consistently.

Although the measures were announced by the government, the legislation was still being finalised at the time of writing.

Personal Deductible Contributions

Personal deductible contributions have become an increasingly popular strategy for individuals looking to build retirement savings while reducing taxable income.

Prior to 1 July 2017, strict rules limited who could claim tax deductions for personal super contributions. However, the removal of the “10% rule” made personal deductible contributions accessible to almost all eligible individuals.

Today, most people under age 75 can claim tax deductions for personal super contributions provided the contribution acceptance rules are satisfied.

For individuals aged between 67 and 75, additional rules apply. To claim a tax deduction for personal contributions, the individual must generally satisfy the work test or qualify for the work test exemption.

The Work Test

The work test requires an individual aged between 67 and 75 to be gainfully employed for at least 40 hours during a consecutive 30-day period within the financial year in which the contribution is made.

“Gainful employment” broadly refers to paid employment or self-employment activities carried out for reward or compensation.

Importantly, unpaid volunteer work does not satisfy the work test requirement.

Unlike previous rules, the work test no longer determines whether contributions can be accepted by the fund. Instead, it only affects whether the individual can claim a tax deduction for the contribution.

Work Test Exemption

The work test exemption provides additional flexibility for recently retired individuals.

To qualify for the exemption, the individual must:

• have a total superannuation balance below $300,000 at 30 June of the previous financial year,
• have satisfied the work test in the prior financial year, and
• not have previously used the exemption.

The exemption can generally only be used once.

This rule allows recently retired individuals to make one final round of tax-deductible contributions even after they stop working.

Notice of Intent Requirements

Before claiming a tax deduction for personal super contributions, individuals must provide a valid Notice of Intent to Claim a Deduction form to their superannuation fund trustee and receive written acknowledgment.

The notice must generally be lodged before the earlier of:

• lodging the individual’s tax return, or
• the end of the following financial year.

The notice becomes invalid if the contribution is rolled over, withdrawn, or used to commence a pension before acknowledgment is received.

Failure to complete this process correctly can result in the loss of the tax deduction entirely.

Catch-Up Concessional Contributions

One of the most valuable superannuation strategies introduced in recent years is the ability to carry forward unused concessional contribution caps.

Individuals with a total superannuation balance below $500,000 at 30 June of the previous financial year may be able to access unused concessional cap amounts from the previous five financial years.

This strategy is particularly beneficial for individuals with irregular income patterns, career breaks, or periods of reduced employment.

For example, someone who took several years away from work for parental leave may later contribute significantly larger amounts into super using carried-forward concessional cap space.

Potentially, eligible individuals could contribute well over the standard annual concessional cap without triggering excess contribution tax consequences.

Final Thoughts

Australia’s superannuation system offers substantial tax advantages, but the rules surrounding concessional contributions have become increasingly sophisticated.

Division 293 tax, contribution caps, work test rules, salary sacrifice arrangements, and carried-forward contribution opportunities all play an important role in retirement planning.

For higher income earners, the interaction between personal income and concessional contributions can create unexpected tax liabilities if not carefully monitored. Similarly, retirees and pre-retirees need to understand the rules surrounding deductible contributions and work test exemptions to maximise available opportunities.

With proper planning and professional advice, concessional contribution strategies can remain one of the most effective ways to build long-term retirement wealth in a tax-efficient environment.

Disclaimer

This article contains general information only and does not constitute financial, legal, taxation, or investment advice. SMSF contribution rules are complex and depend on individual circumstances. Trustees should obtain professional advice before making contributions, transferring assets, or implementing any SMSF contribution strategy.