All About Contribution Caps

Making additional contributions to your superannuation fund can be an excellent way to boost your retirement nest egg and fund a comfortable lifestyle for yourself when you stop working. In addition to the employer superannuation guarantee contributions you receive as part of your employment, you can make concessional and non-concessional contributions.

However, you need to be aware of contribution caps before you proceed.

Contributions and Contribution Caps

What are Concessional Contributions?

Concessional contributions include:

• compulsory employer superannuation guarantee contributions,
• salary sacrifice arrangements, and
• any personal super contributions that you claim as a tax deduction.

A concessional contribution from before-tax income is taxed at 15% in your super fund.

The Wonders of Concessional Contributions

There are two main benefits of making concessional contributions.

First, a higher concessional contribution reduces your taxable income, reducing your tax bill. This is how the government entices you to save for your retirement.

Second, the money you put into your superannuation account is taxed at a lower rate than your salary or other income. This is called ‘pre-tax’ or ‘concessional’ contributions and gives you a double benefit.

What are Non-Concessional Contributions?

Non-concessional contributions include:

• voluntary additional payments made from your after-tax income,
• any made on behalf of your spouse (married or de facto),
• a government co-contribution.

A non-concessional contribution is made from after-tax income and is not taxed in your super fund.

What is a Contribution Cap?

We don’t all have the same amount of money, which applies to super contributions. There is a maximum amount of money you can contribute to super each year and a maximum limit on the amount that can be contributed through your employer – this is known as a contribution cap.

From 1 July 2021, the annual concessional contributions cap is $27,500.

Concessional contributions cap exemptions:

• As regulated by the ATO, from 1 July 2018, members can make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. Members can access their unused concessional contributions caps on a rolling basis for 5 years. Amounts carried forward that have not been used after 5 years will expire.
• The first year in which you can access unused concessional contributions is the 2019–20 financial year.¹

From 1 July 2021, the annual non-concessional contributions cap is $110,000.

Non-concessional contributions cap exemptions:

• If your total super balance is greater than or equal to the general transfer balance cap ($1.7 million from 2021–22) your non-concessional cap is nil.
• Alternatively, your non-concessional contributions cap may be higher than $110,000, if you can utilise the ATO’s bring-forward arrangements.^{2 + 3}

The Bottom Line: The Importance of Knowing Your Contribution Caps

While you should always try to make the most of your super, it’s worth knowing that you can’t contribute more than your super fund will allow. If you go over the limit, it could be subject to a tax penalty.

How Can We Help You?

Everyone wants to have a secure superannuation strategy, but most of us aren’t sure how to start. That’s why NFPG is here to help with whatever you need to achieve financial independence as you grow older.

Newcastle Financial Planning Group guides clients to enjoy their dream retirement through excellent financial planning and personalised advice. We’ve got you covered, from retirement planning superannuation advice to creating self-managed super fund investment strategies.

Call us or book online to secure your first appointment with us today and get started!

 

REFERENCES:

1. https://www.ato.gov.au/super/self-managed-super-funds/contributions-and-rollovers/contribution-caps/
2. https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions—too-much-can-mean-extra-tax/?page=5#Non_concessional_contributions_and_contribution_caps
3. https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=5#Bringforwardarrangements