Due to tax concessions afforded to funds held in superannuation, there have been limits placed on the amounts per financial year that may be contributed to superannuation. These caps apply to the tax definition of the contribution. There are essentially two categories for contributions applicable to your circumstance:
- Concessional contributions; and
- Non-concessional contributions.
Concessional Contributions – $25,000 Maximum
These are before tax contributions paid by employers (including superannuation guarantee, and salary sacrifice contributions). A 15% contributions tax will apply to concessional contributions. The maximum amount for this category is $25,000 for this financial year. Any excess contributions above the current $25,000 CAP will be classified as non-concessional contributions.
Under New Legislation as of 1 July, 2017 personal contributions (funded from personal accounts) may also be classified as concessional allowing for a tax deduction in the personal tax return, regardless of whether you are self-employed, a wage earner, or retired and under age 65.
It can be done as one lump sum towards the end of the financial year (or via several deposits as funds are available). Once the final personal contribution has been complete a form needs to be lodged with Colonial advising of “Your Intention to claim the tax deduction”. The corresponding confirmation back from colonial can then be used to claim a ‘personal’ tax deduction in your tax return.
Unused Concessional Cap
In the event that you do not fully utilise the $25,000 CAP, the unused component can be carried forward to the next financial year increasing your Concessional CAP for the following year. This can continue to accumulate for a maximum of 5 years. This can be advantageous if you anticipate landing in a higher tax bracket in a future year (eg in the event of a one off event such Bonus income or, Capital Gains Event). This is only applicable if your super balance is under $500,000 at the start of the financial year of your contribution.
Non-concessional contributions – $100,000 Maximum
These are personal after-tax contributions. There is no contributions tax applied to non-concessional contributions. Furthermore these funds will not be subject to any tax upon withdrawal at any age including upon death when paid out to your nominated beneficiaries. The maximum amount for this category is $100,000 for this financial year.
Three Year – Bring forward provision – $300,000 Maximum
Persons under age 65 at any time in the financial year (i.e. 64 as at 1 July 2020) may effectively bring forward up to two full years worth of non-concessional contributions, allowing a contribution of up to $300,000 in a single financial year or spread across 3 years.
This aggregate rule is triggered as soon as your personal contribution exceeds $100,000 in any given year. This can be utilised to good effect when receiving large lump sums such as property sales or an inheritance or as part of a re-contribution Strategy.
Prior to the 2019 Federal election win the Coalition Government proposed to extend an additional 2 years to persons under age 67 effective from 1 July 2020 for the 2020/21 financial year (i.e. 66 as at 1 July 2020). Given this move is in alignment with the centrelink AGE pension of age 67, there is a strong probability that this change will be legislated. The current work test has already been lifted from age 65 to age 67.
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This article is for educational purposes only and cannot be taken as personal advice. It does not take into account any individual’s objectives, financial situation or needs. Any examples are for illustrative purposes only and actual risks and benefits will vary depending on each individual’s circumstances. You should consult with a financial adviser to discuss your personal situation.