Concessional Contributions

Concessional contributions are super contributions made from before-tax income. They earn the name because they are taxed at 15 percent inside the fund rather than your marginal rate. The category bundles three sources: your employer's 12 percent superannuation guarantee, any salary sacrifice arrangement, and personal contributions you claim as a tax deduction. On a $100,000 salary, the employer's $12,000 guarantee is already a concessional contribution before you add a cent.

Everything in the bucket must fit under the annual cap: $30,000 for 2024-25 and 2025-26, with unused caps from the past five years potentially available under the carry-forward rule. The 15 percent rate is the entire point: every dollar diverted from your 32 percent marginal rate - the $100,000 bracket plus Medicare levy - saves 17 cents of tax and compounds inside the fund instead. Over the cap, the excess is taxed at your marginal rate, which turns the strategy into a paperwork exercise with no benefit.

Walk one year of the bucket. Your employer's 12 percent guarantee on a $100,000 salary is $12,000 - already concessional. You salary sacrifice a further $5,000 through your payroll, which redirects the money before tax lands in your bank account. You could also make a personal contribution and claim it as a deduction with a notice of intent to your fund. The total in the bucket - $17,000 in this case - must fit under the $30,000 cap, and unused cap room from the past five years can extend it under the carry-forward rule.

The tax arithmetic is the reason the term exists. Every dollar salary sacrificed on a $100,000 salary avoids your 32 percent marginal rate - the 30 percent bracket plus the 2 percent Medicare levy - and is taxed at 15 percent instead: a saving of 17 cents per dollar. On the $5,000 sacrifice, that is $850 a year of tax saved, and the full $5,000 compounds inside the fund rather than the after-tax $3,400 it would have been in your bank account.

The cap is the hard boundary. Contributions over it are taxed at your marginal rate through an assessment - the strategy inverts, and the excess becomes expensive paperwork. Checking your remaining cap in myGov before any extra contribution is the two-minute habit that keeps the arithmetic on the right side.

For an Australian reader, concessional contributions are the tax engine of super. The 15 percent envelope is why super beats an equivalent taxable account for anyone earning above the 16 percent bracket, and the cap is the lever you actually control. The guarantee fills much of the bucket automatically; salary sacrifice and deductible personal contributions are the parts you decide. The superannuation guarantee entry covers the automatic part of the bucket.

A colleague named Brent (yes, that Brent) salary sacrificed generously through a bonus year and exceeded the cap. He discovered the excess was taxed at his marginal rate - the 17 cents of saving inverted into a surcharge plus a notice of assessment he had to lodge. The highest-leverage thing most Australians can do is check the remaining cap in myGov before contributing extra. Use the carry-forward rule after a low-income year, and run the sacrifice arithmetic through the salary sacrifice calculator before committing.