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.

Concessional contributions

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 your before-tax 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. (2018/19 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 before-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 concessional contributions charge as well.

Non-concessional contributions

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. (2018/19 figure). Note that:

• Your non-concessional 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 2018/19) 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, you may make non-concessional contributions of up to 3 times your concessional contribution cap (in total $300,000) for a 2-3 year period depending on your total superannuation balance at the of 30 June of the previous financial year. You must be under 65 and have a super balance of less than $1.5m at 30 June of the previous financial year.

If total after-tax contributions exceed the cap, you will be required to pay a higher tax rate on the excess amount.

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 2018/19 the maximum superannuation contribution base is $54,030 per quarter.

An employer does not have to pay SG for the part of earnings above this limit.

The maximum SG that an employer is required to contribute is the equivalent of 9.5% of $54,030 per quarter which works out to be $5,132.85 per quarter (that is $20,531.40 SG for the year).

Total Superannuation Balance

The total superannuation balance is a way to value your total super interests on a given date.

Your total superannuation balance is relevant when working out your eligibility for:

1. the unused concessional contributions cap carry-forward
2. the non-concessional contributions cap and the two or three year bring-forward period
3. the government co-contribution
4. the tax offset for spouse contributions

Total superannuation balance is generally calculated at the end of each financial year ie 30 June. The first date it will be used to determine your eligibility for these measures is 30 June 2017.

Broadly, if your superannuation balance is greater than the new general transfer balance cap (set at $1.6 million for the 2018/19 financial year and indexed in $100,000 increments in line with the CPI periodically) you will not be eligible for the government co-contribution, the tax offset for spouse contributions, the unused concessional contributions cap carry-forward (which commences in 2018/19) and the non-concessional contributions cap and the two or three year bring-forward period.