Making additional payments to your super fund will help you build your retirement savings. There are two types of contributions you can make to a super fund; Concessional or Non-Concessional. The government imposes a cap on each type, limiting how much money you can contribute to your super fund each financial year. So what is the cap and what happens if you exceed your super contributions cap?
First, let’s take a look at the difference between the two types of contributions.
Concessional contributions come from pre-tax dollars and include:
- Employer superannuation contributions, including compulsory Superannuation Guarantees;
- Life insurance premiums within a super fund that is paid by the employer on a member’s behalf;
- Salary sacrifice and personal contributions for which a tax deduction has been claimed.
Once the contribution is received in your super fund, they are taxed at the 15% rate.
Non-Concessional contributions come from after-tax dollars and where no tax deduction has been claimed at the time the contribution is made. These can include:
- After-tax income contribution payments that you make
- After-tax contributions that your employer makes on your behalf
- Contributions your spouse makes to your super fund (unless your spouse makes contributions as your employer)
Non-Concessional contributions are not taxed in your super fund (but associated investment earnings are taxed at 15%).
Mind the ‘Cap’
The government has placed a cap on the amount of money you can contribute to your super fund each year. These limits are:
Concessional Contribution Caps
|Financial Year||Age||Cap Amount|
|2016-17||48 or under||$30,000|
|49 or older||$35,000|
*Unused amounts from 2018-19 can be carried forward to increase your 2019-20 Concessional cap, but only if you have a super balance of less than $500k at the end of 30 June in the previous year. Unused amounts are available for a maximum of five years and will expire after this.
Non-Concessional Contribution Caps
|Total Super Balance (on 30 June of previous financial year)||Cap Amount|
|Annual (Financial Year) Cap||Less than $1.6m||$100,000|
|Bring-Forward Rule** (triggered in 2017-18)||Less than $1.4m
$1.4m to less than $1.5m
$1.5m to less than $1.6m
|Bring-Forward Rule** (triggered in 2016-17 but not fully utilised by 30 June 2017)||Less than $1.6m||UP to $380,000 by 30 June 2019|
**Bring-Forward rule requirements apply
What happens if you exceed the cap?
Exceeding the concessional cap is not ideal, but it is not going to cause financial ruin. Concessional Contributions in excess of the cap will be taxed at your marginal tax rate (as calculated by the ATO) plus an interest charge. Non-Concessional Contributions in excess of the cap will be taxed at 47%. When applying the ‘extra’ tax, the ATO allow for the fact that your super fund has already paid 15% tax within the fund.
Refund of excess concessional contributions
From 1 July 2013, you will be given the option to withdraw any excess concessional super contributions. Whether you elect to withdraw the excess amount or not, the tax treatment of the excess contributions is the same i.e. after the withdrawal the excess will then be taxed at your marginal rate (plus an interest charge).
Note that any excess concessional contributions that are left in your super fund will count towards your Non-concessional cap, so careful planning and/or financial advice is recommended. If you elect to withdraw your excess contributions they will not count towards your Non-concessional cap.
How the extra tax is paid
At the end of each financial year, your super fund(s) reports your contributions to the ATO. The ATO adds all contributions reported in your name and assesses the total against the relevant cap. If you have exceeded the cap, the ATO will issue you an assessment notice based on your personal tax return.
You have the option of paying this tax from your super fund or from personal non-super savings.
If you choose to pay the tax from your super fund, you will need to give your fund a “Release Authority” which authorizes your super fund to pay the tax.
If you have any questions or concerns, please contact us.
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Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online