If you are interested in boosting your superannuation savings, you may want to know the difference between concessional contributions (CC) cap and non-concessional contributions (NCC) cap. Here is an explanation of these terms and how they affect your super.
Concessional contributions are contributions that are made to your super fund before tax. They include employer contributions (including salary sacrifice payments), personal contributions that you claim as a tax deduction.
The $27,500 Concessional Contributions (CC) Cap is NOT all for you to use! Super Guarantee (SG) also uses up that cap. Super Guarantee for the 2023-2024 financial year is 11% which is the 11% of your paycheck that is paid into your Superannuation by your Employer.
Concessional contributions are taxed at 15% in your super fund unless you exceed your CC cap or have a high income. The CC cap is the limit on how much concessional contributions you can make in a financial year without paying extra tax. The CC cap for the 2023-2024 financial year is $27,500. This cap applies to the total of all your super accounts across different funds. If you have unused CC cap from previous years, you may be able to carry it forward and make additional concessional contributions, depending on your total super balance. The treatment of your excess CC is as follows:
- All excess CCs taxed at marginal rates (less 15% offset)
- Individuals have the option to withdraw excess amount from super (net of 15% fund tax)
- Excess concessional contributions charge will not apply to excess concessional contributions from 1 July 2021
From 1 July 2018 unused CC cap can be carried forward for up to 5 financial years for use in a future financial year however you must meet the following requirements:
- Individuals CC cap increased if:
- Actual CCs are greater than standard CC cap.
- They have unused CC cap available from any or all of the 5 prior financial years, and
- Total superannuation balance is less than $500,000 at 30 June of prior financial year.
Non-concessional contributions (NCC) are contributions that are made to your super fund from your after-tax income. They include personal contributions that you do not claim as a tax deduction, spouse contributions, contributions for a child (apart from employer contributions), amounts transferred from an overseas pension scheme that are not taxable in the fund, and Excess CCs (grossed up to include the 15% fund tax), excluding the amount of excess CCs which are withdrawn. Non-concessional contributions are not taxed in your super fund, unless you exceed your NCC cap. Here are the NCC cap exemptions:
- Government co-contributions and low-income superannuation tax offset
- Downsizer contributions (within limit)
- CGT small business concession contributions (within limit)
- Personal injury contributions
- Contribution relating to superannuation benefits accessed under the COVID-19 early release of super rule when made from 1 July 2021 and by 30 June 2030
The NCC cap is the limit on how much non-concessional contributions you can make in a financial year without paying extra tax. The NCC cap for the 2023-2024 financial year is $110,000. This cap may be reduced or nil if your total super balance is close to or equal to the general transfer balance cap ($1.9 million for 2023-2024). If you are under 75 years of age, you may be able to use the bring forward rule and make up to three times the annual NCC cap in a single year.
- Members under age 75 at any time in a financial year can bring forward future annual NCC cap entitlements based on their total superannuation balances at 30 June of the prior financial year where the total superannuation balance is:
- Less than $1.68 million, total NCCs in a 3-year period is capped at $330,000.
- $1.68 million to less than $1.79 million, total NCCs in a 2-year period is capped at $220,000.
- $1.79 million to less than $1.9 million, bring forward not available with total NCCs limited to $110,000.
- Bring forward rule applied from 1 July of first financial year where NCCs exceed $110,000.
- Total superannuation balance must also be less than $1.9 million prior to 30 June otherwise remaining NCC cap is nil for that year and NCCs will be excessive.
- Contribution acceptance rules mean the contribution can only be accepted by the superannuation fund up to 28 days after the month the member turns age 75.
The treatment of excess NCC is as follows:
- Excess amounts not withdrawn from superannuation is taxed 47% in 2017/2018 and later years.
- Individuals have the option to withdraw excess amounts and 85% of associated earnings from super. Total amount of associated earnings taxed at marginal rates, less than 15% offset.
The main difference between CC cap and NCC cap is that they apply to different types of contributions and have different tax implications. CC cap applies to before-tax contributions and NCC cap applies to after-tax contributions. Exceeding either cap may result in extra tax liability.
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