How does it work?
There are many important tax benefits associated with investing in super. But to make the most of these benefits you need to understand the different types of super contributions, and be aware of the limits that exist on how much you can contribute to super tax-effectively each financial year.
The two types of contributions that qualify under the contribution caps are:
Concessional contributions – are generally made to a super fund by your employer or if you’re self employed, those made by you for which you claim a personal tax deduction. These are included in the assessable income of the super fund (which is taxed at 15%) because a tax deduction has already been claimed for them by you or your employer. Examples of concessional contributions include super guarantee (SG) contributions, salary sacrifice amounts, and any contribution allowed as a personal deduction in your income tax return.
Non-concessional contributions – are not included in the super fund’s assessable income because it is a personal super contribution which you’ve made from your after-tax income.
The following table shows the current contribution caps that apply to both concessional and non-concessional contributions, depending on your age. It also includes details of the extra tax that would apply to any amounts that exceed the cap.
What does it mean for me?
Planning for contribution caps is an important part of any superannuation strategy. Getting it right can help you enjoy a more comfortable retirement, but the penalties for getting it wrong can be severe – which is why it’s important to receive professional financial advice in this area.
Generally speaking, if you make any excess concessional contributions, you’ll be subject to a penalty tax of 31.5%, on top of the 15% paid by the super fund. That’s the equivalent of paying the highest marginal tax rate
(46.5% including the Medicare levy) on these amounts. Furthermore, any excess concessional contributions will be counted towards your non-concessional contributions cap.
Any excess non-concessional contributions you make will be taxed at 46.5%. However, if you are under age 65 at the start of the financial year, you have the ability to utilise the ‘bring forward rule’ and increase your non-concessional cap from $150,000 to $450,000 – bearing in mind that this will limit your available non concessional contributions cap for the following two financial years.
