Contributions caps - there's a limit
The Australian taxation and superannuation systems are set up to provide some excellent tax benefits and concessions to people who contribute to their own super while they’re working.
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 limits are known as contributions caps.
How do super contributions caps work?
The cap amount 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 2022/23 financial year.
|Before-tax (concessional) contributions including employer contributions||$27,500 p.a.||People with a taxable income including super of less than $250,000 a year pay 15% tax|
|People with a taxable income including super of more than $250,000 a year or more pay a higher rate of tax of 30%.|
|After-tax contributions||$110,000 p.a.||No tax is payable on amounts up to $110,000 a year (or $330,000 over three years, see the note below).|
|Your total super balance must be less than $1.7 million.|
Example – caps at work
Jane wants to boost her super.
She earns $60,000 per year and her employer puts in 10.5% super, which is $6,300 per year.
Jane then asks her employer to also pay some of her salary directly into her super account instead of her bank account.
This is salary sacrificing and this part of her income is only taxed at 15% instead of the 34.5% she would normally pay (income tax plus Medicare levy).
The contribution cap is $27,500 p.a., of which $6,300 has already been paid by Jane's employer.
This means she can salary sacrifice up to a further $21,200 per year at the 15% tax rate. Or she can make a personal super contribution and claim a tax deduction - this type of contribution is counted under the before-tax contribution cap.
She decides to salary sacrifice as she will gain the tax benefit sooner, she chooses $10,000 giving her a $1,950 tax saving ($3,450 income tax and Medicare saving, less $1,500 super contributions tax).
$330,000 over 3 years
The bring-forward rule lets you take a 3-year view of your after-tax contributions so your 3-year total stays under $330,000.
You must be under 75 years for one day during the first year to be able to take advantage of this rule!
To work out your after-tax cap for the year, subtract any after-tax contributions you have made during the bring-forward period from your maximum bring forward amount.
If you are uncertain whether you have triggered your bring forward arrangement or you need help working out your contributions cap, you can speak to your Industry SuperFund.
I paid too much, what do I do?
Don’t panic! But do take action as there is an excess contribution charge.
If your before-tax contributions are over the cap you can choose to withdraw up to 85% of the excess.
If your after-tax contributions are over the cap try the bring forward rule above.
If you are stuck talk with your Industry SuperFund.
I’m over 67
If you’re 67 -74 you can only claim a tax deduction on after-tax super contributions if you have been employed for at least 40 hours over 30 consecutive days during the financial year. This is called the work test which you can read more about here.