What are concessional contributions? And is there are cap on how much my employer can add to my SMSF? Here’s what you need to know.

Self-managed super funds (SMSF) can be a great way to take a hands-on approach to your retirement savings, giving you, among other things, relatively free reign on the type of investments you’d like to take. There are certainly plenty of advantages, but there is also a bundle of points to be aware of. For one, understanding the types of contributions you can make to your super, as well as the caps that apply, can help you get the most from your fund and keep you on the right side of the tax office.

Here’s a brief overview of just one form of contribution you can make – concessional.

What do concessional contributions involve?

In essence, concessional super contributions are made from money that hasn’t been taxed yet. They’re also given a favourable tax treatment by the Australian Taxation Office (ATO), meaning they’re treated as part of the SMSF’s assessable income and taxed at the discounted rate of 15 per cent.

What are some common types? 

There is a wide range of concessional contributions. The most common forms are compulsory employer contributions, such as super guarantees, which are made for the benefit of a fund member.

There are also salary sacrifice contributions that your employer can make voluntarily. These involve your employer making contributions above the level they’re required to and paying the amount to your SMSF account rather than passing it on to you as part of your salary. A benefit of concessional contributions is that your SMSF can accept them at any point, no matter your age or working hours.

Have a chat to your employer about this option. It could be a good idea to boost your retirement savings, as it will fall under the concessional tax rate rather than individual income tax. Paying 15 per cent on income diverted to super may be more attractive than paying up to 45 per cent personal income tax for high income earners.

What are the caps?

While growing your super savings is a fantastic way to bolster your finances for retirement, the ATO has put a cap on concessional contributions for every year. Luckily, any extra contributions aren’t subject to a higher tax rate, but you will be taxed at the marginal rate. If need be, you can still withdraw the funds and add them to your individual income.

The cap from July 1 2014 is $30,000 per financial year, and there is a $35,000 cap for 2015-2016 on those aged 49 years or over. Be aware, too, that if you’ve got more than one SMSF, all concessional contributions made are added together and counted towards the cap. To stay on the right side of the ATO, it’s worth having a chat to your financial adviser about managing the amount that goes into your funds.

Remember: An SMSF is just one type of super fund that may or may not suit you, but the tax rules are the same for any type of super fund. Talk to one of our financial planners today!