Super Guarantee: Thresholds, caps and limitations
Employers are required under Superannuation Guarantee (SG) legislation, to make super contributions on behalf of their employees, and at the correct rate. Anyone with a super account can also make voluntary contributions to their account.
There are some limits and terminology to be aware of.
This means the before-tax contributions made to a super fund – these are taxed at a lower (i.e. concessional) rate of tax. The tax rate depends on your income plus your before-tax super contributions. Generally, if your income plus super contributions is:
- under $250,000 p.a. you pay 15% tax;
- $250,000 p.a. or more you pay 30% tax.
Concessional contributions cap
There is a limit to the amount you can contribute to super from your before-tax income in order to benefit from the concessional tax rate.
The cap – which includes contributions made by your employer under the Super Guarantee scheme – is set at $25,000 p.a. (2020/21 figure). This figure is indexed each year in line with the average weekly ordinary time earnings, rounded down to the nearest $2,500.
If total after-tax contributions exceed the cap, you will be required to pay a higher tax rate on the excess amount and you may have to pay an excess charge as well.
Non-concessional means contributions made to a superannuation fund from after-tax income. These contributions are not taxed in the super fund.
Non-concessional contributions cap
Even though after-tax voluntary contributions have been taxed at your normal rate of income tax, there are still limits to the amount you can contribute to your super.
The cap is set at $100,000 p.a. (2020/21 figure). Note that:
- Your non-concessional (after-tax) cap will be zero for a financial year if you have a superannuation balance greater than or equal to the general transfer balance cap ($1.6m in 2020/21) at 30 June of the previous financial year.
- If you are aged 65 to 74 years, you must meet the At Work Test.
- If you are under 65 years and have a super balance of less than $1.6 million on 1 July of the financial year, you're able to bring forward the next two years of after-tax contributions and make a lump sum contribution of $300,000 in the one financial year. For example, if you make a $300,000 contribution during the 2019/2020 financial year you won't be able to make any further after-tax contributions until the 2022/2023 financial year.
If your total after-tax contributions exceed the cap, you will be required to pay a higher rate of tax on the excess amount and you have to pay a charge as well.
Maximum Superannuation Contribution Base
This is the sum, set by the Federal Government each year, which is the maximum limit on an employee's earnings base for each quarter of a financial year.
For 2020/21 the maximum superannuation contribution base is $57,090 per quarter.
An employer does not have to pay super guarantee for the part of earnings above this limit.
This means that the maximum super guarantee amount an employer is required to contribute is the equivalent of 9.5% of $57,090 per quarter (equivalent to $228,360 for the year), which works out to be a contribution of $5,423.55 per quarter.