Contributions caps - there's a limit
The Australian taxation and superannuation systems are set up to provide some excellent tax benefits and concessions to those income-earners who contribute to their own super while they’re working. But, while there is no limit to how much you’re allowed to add to your super, there is a limit on the tax concessions you can claim.
In short, if you contribute too much you may have to pay extra tax and a charge. These superannuation contribution limits are known as contributions caps.
How do super contributions caps work?
The cap amount and how much extra tax you have to pay depends on your age, salary and what types of contributions are made. The table below generally describes the contributions, caps and tax rates for the 2018/19 financial year.
|Contribution||Cap||Tax rate||Excess contributions|
|Concessional contributions include:
Employer contributions (including SG and other additional employer contributions), salary sacrifice, contributions where you’ve claimed a tax deduction, before tax spouse contributions*
|$25,000 p.a.||People whose adjusted taxable income is less than $250,000 a year pay 15% tax||Any amounts over the $25,000 p.a. limit will be taxed at your marginal tax rate*, less a tax offset of 15%, plus the excess contribution contributions charge^.|
|People whose adjusted taxable income is $250,000 a year or more pay a higher rate of tax of 30%.||Any amounts over the $25,000 p.a. limit will be taxed at your marginal tax rate*, less a tax offset of 15% plus an the excess concessional contributions charge^|
|Non- Concessional contributions*** include:
Personal contributions with no tax deduction claimed, after –tax spouse contributions
|$100,000 p.a.||No tax is payable on amounts up to $100,000 a year (or $300,000 over three years if certain conditions are met*)||If you have $1.6m or more in your super account, you can’t make after-tax contributions.
Any amounts over the $100,000 p.a limit will be taxed at 47%†**.
†Includes Medicare levy
*See Bringing forward – averaging out your contributions
^For excess concessional contributions you may elect to withdraw up to 85% of your excess concessional contributions from your superannuation fund to help pay your income tax assessment when you have excess concessional contributions.
** You can ask your fund to release the amounts over the limit. The associated earnings withdrawn are taxed at your marginal tax rate. You will also be entitled to a 15% non-refundable tax offset of the associated earnings included in your assessable income. If you choose not to withdraw your excess after-tax contributions, they will remain in your super account and the excess will be taxed at 47% inclusive of the Medicare levy.
***If you’re under 65, you can make personal after-tax contributions to your super fund if you’re not working. If you’re 65 years of age or over, you can only make personal after-tax super contributions if you: aren’t yet 75 years of age or older and have been gainfully employed for at least 40 hours over 30 consecutive days during the financial year.
Bringing forward - averaging out your contributions
If you’re under 65 years of age, you may be able to spread your after-tax contribution cap over three years. This ‘bring-forward’ option lets you average out your contributions, so if your average annual voluntary contribution over three years is less than $100,000, you may be able to avoid paying super contributions tax. 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 years for one day during the trigger year (the first year), and your total superannuation balance must be less than $1.5 million at the end of the previous financial year.
The remaining cap amount for year two or three of a bring forward arrangement is reduced to nil for a financial year if your total superannuation balance is greater or equal to $1.6 million at the end of the previous financial year.
If you have triggered the bring forward period in 2016-17 but have not fully used your bring forward amount before 1 July 2017, transitional arrangements will apply. This means the maximum amount of bring forward available will reflect the reduced annual contribution caps:
|Year bring forward period started||Maximum bring forward amount in 2018-19|
To work out your non-concessional cap for the year, subtract any non-concessional contributions you have made during the bring-forward period from your maximum bring forward amount.
If you are uncertain if you have triggered your bring forward arrangement or you need assisting working out your 2018-19 contributions cap, you can speak to an adviser or phone the ATO on 13 10 20.
Chat to your super fund to see if you’re eligible.