Non-Concessional Contributions

What is a Non-concessional Contribution?

A Non-concessional Contribution (NCC) is a contribution made to a superannuation fund by an individual for their own benefit or for the benefit of their spouse or children under 18 years of age.

How does it work?

NCCs can be made from after-tax income, savings, or the sale of assets. NCCs may also be made from inheritances, gifts and windfalls.

Contribution Caps

The non-concessional cap is currently $110,000 per annum. Non-concessional contributions can only be made by individuals with a total superannuation balance of less than $1.7m.

The total superannuation balance is the sum of all amounts a person has in superannuation at the previous 30 June. This includes amounts held in both accumulation accounts and accounts paying a pension or income stream. Where a person is a member of a defined benefit or constitutionally protected fund, special rules apply to determine their total superannuation balance.

Three-year bring forward rule

Provided a person was under the age of 75 at the start of the financial year in which they intend to make a NCC, they may be able to bring forward up to three years contributions. The three-year bring forward rule is triggered when NCCs in a financial year exceed $110,000. When this occurs, the maximum that may then be contributed over the course of the next two financial years is $330,000, less NCCs made in years 1 (and 2).

Where a person has a total superannuation balance of $1,480,000 or more, the amount that can be contributed under the three-year bring forward rule is scaled back as shown in the following table:

Exceeding the NCC cap

If NCCs exceed the allowable cap, the Australian Taxation Office will issue an excess NCC determination. Provided an election is made to withdraw the excess NCCs together with associated earnings, which are taxed at an individual's marginal tax rate, no other penalty is applied. A 15% tax offset is provided to compensate for the tax paid by the superannuation fund on the associated earnings.

Where an election is not made within the prescribed time (within 60 days of the date the determination was issued), the Australian Taxation Office will tax the excess NCCs at a rate of 47%. The Australian Taxation Office has the power to order the compulsory release of excess NCCs from a superannuation, where the election is not made by the member of the fund.

Tax penalties may apply if either the concessional or non-concessional contribution exceeds the relevant caps.

Where the concessional contribution cap is exceeded, in respect of contributions made after 30 June 2013, the excess contribution may be withdrawn from super. They will be taxed at the taxpayer’s marginal tax rate, plus an interest component. Excess concessional contributions, not withdrawn from superannuation are also counted against a person's non-concessional contributions cap.

As an excess concessional contribution may also be counted against a person's non-concessional contribution cap, an excess concessional contribution may also be taxed where a person has also maximised their non-concessional contributions.

Non-concessional contributions that exceed the non-concessional contribution cap made on or after 1 July 2013 must be withdrawn from super along with the earnings on those contributions. The earnings are taxed at the taxpayer's marginal tax rate. If the member fails to withdraw the excess non-concessional contributions from super, they will be taxed at 47%.

Certain non-concessional contributions may be excluded from being assessed against the non-concessional contribution cap. These include contributions made under the ‘small business capital gains tax concessions' where a separate cap of either $500,000 (where the contribution is made under the ‘retirement exemption') or $1,615,000 (for contributions made under the ‘15-year exemption') applies. Non-concessional contributions made as a consequence of certain personal injury settlements are not subject to the non-concessional contribution cap, provided certain conditions are met.

Taxation of NCC's

NCC made to superannuation fund it is not taxable in the fund. NCC form part of an individual's tax-free component within super. When the tax-free component is paid as either a lump sum or as an income stream, the benefit is tax-free.

Investment earnings on the tax-free component of super are taxable at a maximum rate of 15% and make up the taxable component of super when withdrawn.

What are the benefits?

Making NCCs to superannuation can assist increasing retirement savings and by adding a member's tax-free component.

This may result in a member receiving tax-free lump sum and income stream benefits from their fund. Where member of a superannuation passes away, the tax-free portion of their accumulated savings is tax-free when paid to their legal personal representative (i.e., their Estate) or directly to other beneficiaries.

People making NCCs may be eligible to receive a Government co-contribution and/or the spouse contribution tax offset.

This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.

Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), Blue Rock Private Wealth (Melb) Pty Ltd (ABN 48 652 202 698, ASIC AFS No. 1298365) and their representatives make no representation as to its accuracy or completeness.

Published: September 2022.

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