4.2 Concessional contributions types and cap

Concessional contributions including employer (SG) contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction*, cannot exceed the annual cap shown below:

Income year	Superannuation contribution caps
Concessional 2025/26	no change
Concessional 2024/25	$30,000
Concessional 2023/24	$27,500

Excess concessional contributions

Members are liable to pay excess contributions charges if the concessional contributions made by or for the member exceed their contributions cap for the year. The excess contributions are included in the member's income and taxed at marginal tax rates.

Unused concessional cap carry-forward contributions

From 1 July 2018. a member who has a total superannuation balance of less than $500,000 on 30 June of the previous financial year is entitled to contribute more than the concessional contributions cap amount by contributing any 'unused cap amounts' from the past five years.

Full list of concessional contribution types:

Type of concessional contribution	Description
Super guarantee (SG)	Employer contributions must be made for employees at the prevailing SG rate.
Salary sacrifice amounts	Voluntary contributions made by an employer to a members super fund - the employee makes an arrangement with their to direct (or 'sacrifice)' part of their income to superannuation.
Notional taxed contributions	The notional amount of contributions that related to a member's defined benefit interest.
Voluntary employer contributions	Any employer contributions exceeding an employer's super guarantee obligations, including fund costs paid by the employer (e.g. administration fees and insurance premiums)
Personal tax-deductible contributions	Member contributions for which a tax deduction is claimed
Certain allocations from a reserve	An amount within an SMSF that have not been allocated to a particular member.
Third party ('family and friends') contributions	contributions by parents, other family or friends (not in the capacity of an employer)

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

4.4 Additional 15% tax for high-income earners (Div 293)

Division 293 tax is an additional 15% tax on superannuation contributions which reduces the tax concession for higher income earners. Individuals whose combined income and low-tax (concessional) superannuation contributions are greater than the Division 293 threshold will be subject to Division 293 tax.

Year	Division 293 threshold
From 1 July 2017 onwards	250,000

How is Division 293 taxation determined?

A member is liable to pay Division 293 tax if their income and low-tax superannuation contributions exceed the Division 293 tax threshold.

Division 293 Income

The components of the income calculations are:

The total of:

• taxable income (assessable income minus allowable deductions)
• total reportable fringe benefits amounts
• net financial investment loss
• net rental property loss
• net amount on which family trust distribution tax has been paid

Less,

• super lump sum taxed elements with a zero tax rate
• assessable first home super saver released amount

Super contributions counted for Division 293 tax purposes

Super contributions equal a member's concessional contributions minus any excess concessional contributions. The concessional contributions counted for Division 293 tax purposes include:

• employer contributed amounts
• other family and friend contributions
• assessable foraging fund amounts
• assessable amounts transferred from reserves
• personal contributions for which they have been allowed a deduction
• defined benefit contributions.

Example

Elizabeth's income and low-tax superannuation contributions are as follows:

2023/24
Salary	215,000
Net amount on which family trust distribution tax has been paid	20,000
Elizabeth an income component for Division 293 tax purposes of:	235,000
Super Guarantee contributions	23,650
Salary sacrifice	3,850
Total concessional superannuation contributions*:	27,500
Elizabeth's total Income for DIV 293 purposes is:	262,500
Excess income above the Division 293 threshold is:	12,500
Where income for Division 293 exceeds the threshold, additional tax of 15% applies to the lesser of:
Income above $250,000, and	12,500
Total low tax contributions	27,500
Elizabeth will therefore be liable for tax of 15% x $12,500	1,875

What happens if a member has a defined benefit?

A member's low tax contributions will be the total of any concessional contributions (i.e., employer contributions or salary sacrifice) to an accumulation account, plus any defined benefit contributions, calculated in accordance with a formula specified by the government, less any excess concessional contributions.

For some defined benefit members, notional taxed contributions are capped at the concessional contributions threshold. From the 2017-18 financial year, a member's defined benefit contributions for the purpose of calculating their low tax contributions are equal to their 'notional taxed contributions', but without any cap applying.

For instance, if a member's defined benefit notional taxed contributions calculated without the concessional contribution cap applying is $40,000, and the concessional contribution cap is $25,000 and a cap applies to the member, then the defined benefit concessional contributions are $25,000 but members defined benefit low tax contribution are $40,000.

*The general concessional contributions cap is $27,500 from 1 July 2021

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

4.5 Release of excess concessional contributions

If a member has excess concessional contributions for the financial year, the Commissioner must make a written determination stating the amount of the excess contributions and the amount of excess concessional contributions charge the member is liable to pay.

The determination received by the member may request the release from a superannuation interest up to 85% of the excess concessional contribution. There is an 85% cap because the remaining 15% represents the income tax liability that the fund incurred when it received the contributions. The choice of how much to release, up to the 85%, is at the discretion of the member.

The request to the release the amount must generally be made by the individual within 60 days of receiving the notice, or within a further period allowed by the Commissioner.

Once the request is received by the Commissioner, the Commissioner must provide a release authority for the specified amount to each superannuation provider that holds a superannuation interest identified in the election. The superannuation provider will have 10 business days from the date of issue of the release authority to release the amount to the Commissioner.

A superannuation fund that has been issued with a release authority must pay the Commissioner the lesser of:

• the amount state in the release authority, and
• the sum of the 'maximum available release amounts' for each superannuation interests held for the member by a superannuation provider

The 'maximum available release amount' for a superannuation interest at a particular time is any superannuation benefits held in both accumulation accounts and superannuation income streams but the calculation does not include an interest that is a defined benefit interest.

Notifying the Commissioner

When a superannuation provider receives a release authority must generally pay and notify the Commissioner within 10 business days after the date the release authority is issued. A superannuation provider that fails to notify the Commissioner as required is liable to an administrative penalty.

Consequences of releasing amounts

Any amounts release to the Commissioner due to a release authority will generally be credited against a member's tax liability with excess amounts refunded to the individual. Any amounts relating to Division 293 tax liability that is deferred to a Division 293 debt account are treated as a voluntary payment towards the debt account.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

4.7 Constitutionally protected funds

Constitutionally protected funds (CPFs) are untaxed superannuation funds that do not pay income tax on contributions or earnings.

Some state governments operate CPFs funds for their employees. Funds created for members of the judiciary are also often CPFs. Under the Australian constitution, state government assets cannot be taxed by the Commonwealth, so different arrangements apply to concessional contributions to CPFs.

Concessional contributions to CPFs

Before 1 July 2017, concessional contributions made to a constitutionally protected taxed fund did not count towards an individual's concessional contributions cap. From 1 July 2017, concessional contributions made (and certain other amounts allocated for interests) in CPFs, and unfunded defined benefit funds will count towards a member's concessional contributions cap which is $27,500 in 2022/23. These contributions and amounts on their own cannot result in a member exceeding their concessional contributions cap for a financial year; however, they will be used to assess a member's liability for Division 293 tax.

As CPF contributions are counted towards the concessional contributions cap, care must be taken if a member makes concessional contributions to another superannuation fund. If a member contributes $27,500 to a CPF, any concessional contributions to another superannuation fund will trigger an excess concessional contributions tax.

Example

Concessional Contributions

Joseph is 40 years old and an employee of a state government that operates a constitutionally protected fund (CPF). During the 2023/24 financial year, Joseph's employer contributes $30,000 to the CPF for Joseph. Joseph also has another superannuation fund which is not a CPF and he salary sacrifices $7,500 to this other fund. The concessional contributions cap is $27,500. The $30,000 of concessional contributions made to the CPF count towards Joseph's concessional contributions cap, however, this alone does not trigger an excess concessional contributions tax. However, Joseph also made concessional contributions to another superannuation fund which is not a CFP, bringing his total concessional contributions for the financial year to $37,500. Joseph has exceeded the concessional contributions cap and will have to pay excess concessional contributions tax on the $7,500.

Division 293 tax

Joseph's income is $280,000, making it higher than the Division 293 threshold of $250,000. As a result, the concessional contributions that were not previously treated as excess ($30,000 contributed to the CFP) will now be used to assess his liability for Division 293 tax. Joseph will be issued with a Division 293 tax liability of $4,500 (15% of the $30,000 CPF contributions) which he will need to pay out his superannuation account or from his personal funds.

4.8 Defined benefit schemes

In a defined benefit fund, a member's final superannuation benefit is not dependent solely on contributions and earnings. The benefits may depend on other factors, such as a member's years of service or final average salary (on retirement or termination of employment). Prior to 1 July 2017, generally no concessional contributions counted towards an unfunded defined benefit scheme, e.g., a scheme for government employees, because in such a scheme a member's benefits are not financed until just before they become payable to the member.

Different rules apply for calculating contributions depending on whether they are made to:

a funded defined benefit fund

an unfunded defined benefit fund

a hybrid super fund

Defined benefit interest

A defined benefit interest exists where all or part of the superannuation benefits payable to a member are defined by reference to the member's salary, a specified amount or other specified conversion factors. A superannuation interest is not a defined benefit interest if the only benefits payable in reference to a salary are death or disability benefits.

Concessional contributions from 1 July 2017

From 1 July 2017, the concessional contributions of a member who has one or more defined benefit interests is the sum of:

contributions and amounts that relate to their accumulation interests, if these amounts would be included in their concessional contributions

notional taxed contributions for the financial year in respect of each defined benefit interest, and

the amount by which their defined benefit contributions for the financial year exceed those notional taxed contributions.

Prior to 1 July 2017, the concessional contributions amount for a defined benefit interest was basically a member's notional taxed contributions.

Notional taxed contributions

Notional taxed contributions are the notional amounts of contributions (excluding after-tax member contributions) that relate to a member defined benefit interest. Notional taxed contributions are counted towards a member's concessional contribution cap and are added to the other concessional contributions made to a member's accumulation account in a financial year to determine whether the member's concessional contributions cap has been exceeded.

The extent of the benefit, however, varies between different sub-groups of defined benefit division members, because of the way the government designed the notional taxed contributions formula.

Notional taxed contributions formula:
1.2 x (new entrant x superannuation salary at start of financial year x days in category/ 365 - any after-tax contributions)
New entrant =	These rates are determined by the date the member joined the fund and groupings of the selected member contribution rates
Super salary at start of financial year =	Annual salary as of 1 July of the financial year
Days in national tax contribution category =	How many days in the financial year was an accruing defined member of the benefit category
Any after-tax contributions =	The amount of after-tax member contributions paid by or on behalf of the member in respect of their defined benefit component in the financial year

Special rules (grandfathering) of notional taxed contributions

For some members, it will be difficult to adjust their notional taxed contributions if the member belongs to a defined benefit scheme.

The member could be liable for excess contributions tax even though they are unable to reduce their notional taxed contributions. Therefore, special rules (grandfathering) may apply if a member joined a defined benefit fund on 5 September 2006 (the day the original contribution caps were first announced) or 12 May 2009 (the reduction in the concessional contributions caps).

If a member's notional taxed contribution in a financial year exceeds their concessional contributions cap and they qualify for the grandfathering provisions, their fund will treat their notional taxed contributions as being equal to their concessional contributions cap.

The fund is responsible for determining if a member is eligible for the grandfathering provision.

These grandfathering provisions do not apply to other employer contributions made to their defined benefit fund or other funds.

Eligibility for grandfathering

To be eligible for grandfathering:

• for the 2007/08 and 2008/09 financial years - been a member of an eligible defined benefit on 5 September 2006 (the day the original contributions caps were first announced)
• for the 2009/10 financial year onwards - been a member of an eligible defined benefit fund on 12 My 2009 (the reduction in the concessional contribution caps)
• not had a substantial change to the rules that apply to their benefit since that date
• not had a non-arm's length change to their super salary of more than 50% in a year or 75% in three years since that date
• notional taxed contributions in a financial year in excess of the concessional contributions cap
• met other conditions specified in the regulations.

The grandfathering arrangement may not apply if their fund makes changes to its benefit rules. However, certain minor changes may still allow the grandfathering arrangement to continue.

If a transfer from a defined benefit fund to another defined fund, and continue to meet the requirements, they may still be entitled to the grandfathering arrangements in the new fund (for instance, where the funds provide equivalent rights to members).

The grandfathering provisions do not apply to a super interest in a constitutionally protected fund.

Unfunded defined benefit fund

In an unfunded defined benefit fund, the benefits are not financed until just before they become payable to the member. The benefits are generally paid by their employer.

Unfunded defined benefit funds mostly cover government employees- for instance, the Commonwealth Superannuation Scheme (CSS), Public Superannuation Scheme(PSS) and the Defence Force Retirement and Death Benefits Scheme (DFRB). Many unfunded super funds also have funded components (these are known as partially unfunded).

Concessional contributions (CCs)

Concessional contributions count towards a member's concessional contributions cap. These contributions on their own cannot result in exceeding their concessional contributions cap for a financial year.

Counting unfunded defined benefit fund contributions towards a member's concessional contributions cap means that their ability to make further concessional contributions to other funds is limited. There may be tax consequences for other concessional contributions.

Non-concessional contributions (NCCs)

Non-concessional contributions made to an unfunded defined benefit fund are counted towards a member's non-concessional contributions cap.

Some unfunded defined benefit funds require a member to contribute a percentage of their salary to their super. These contributions are made from after-tax income, so they are non-concessional contributions.

Example:

Liz is a public superannuation scheme member. She makes after-tax (NCC) contributions of $14,000 to the PSS in the 2022/23 financial year. She makes further after-tax contributions of $298,000 to another super fund. Liz can 'bring forward' two years of contributions, giving her a non-concessional cap of (3 x the prevailing NCC cap) $110,000 x 3 = $330,000_for the 2022/23 financial year. Her non-concessional contributions total $312,000 as it includes both the: $14,000 contributed to the public superannuation scheme $298,000 made to the other super fund. Therefore, Liz exceeded her non-concessional contributions cap by $2,000 and has to pay excess non-concessional contributions tax on this amount. Liz's available cap for the next two years is now $0.

Source: adapted from ATO

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.