Case study: Making super contributions from compensation payments

Generally, super contributions are of two types – concessional and non-concessional.

There are annual caps (limits) on the amount of concessional and non-concessional contributions you can make. If you exceed these limits, you’ll be liable to pay extra tax.

• The concessional contributions cap is currently $30,000 per year (unless you are eligible to use the carry-forward rule)
• The non-concessional cap is $120,000 per year (unless you are eligible to use the bring-forward rule).

But there is another situation where super contributions can be made outside the abovementioned contribution caps.

If the super contribution arises from a personal injury payment or a structured settlement, you may be able to exclude all or part of it from your non-concessional contribution cap. This also means that no extra tax will apply to this type of contribution.

Another exemption is that such contributions are not included in the calculation of your total superannuation balance and transfer balance cap. We will discuss in the below case study how this can be very beneficial for the person making such a contribution.  

Eligibility criteria

The Income Tax Assessment Act (ITAA) 1997 section 292–95 provides information on the eligibility criteria for a payment to be contributed to super and excluded from the non-concessional contribution cap.