As the end of the financial year comes racing at us and you are considering contributing additional amounts to superannuation – either to claim as a tax deduction or to boost your superannuation savings – it is important to note some very important caps on the amounts you are able to contribute. If you exceed the cap in a year, you may be liable for additional tax on the excess contributions.
As a bit of a side note here, if you are looking at contributing additional amounts to superannuation, and you want it considered as a contribution in the current financial year, it is important that those contributions are actually received by the superannuation fund and allocated to your superannuation account by 30 June 2023. Due to the overwhelming number of contributions received at this time of the year, most superannuation funds suggest you get your contributions to them no later than about 20th June. Check with your fund to ensure you have your contributions to them by the date they suggest.
Concessional contribution cap
Concessional contributions are basically contributions that someone will be claiming a tax deduction for – either your employer (for example, compulsory superannuation guarantee amounts, or salary sacrificed contributions) or yourself as personal contributions used to reduce your taxable income.
Concessional contributions are currently subject to a yearly cap of $27,500. This means the total of employer contributions (both superannuation guarantee and salary sacrificed amounts) and personal contributions for which you wish to claim a tax deduction, cannot exceed $27,500. This is subject to the unused concessional cap carry forward rules explained below.
As another side note here, since 1 July 2017, people with earnings as employees can also make personal deductible contributions (prior to that, if you received superannuation support in the form of contributions made by your employer, you were unable to make personal deductible contributions, except in very limited circumstances). If your taxable income is going to be higher for some reason, for example, great returns on an investment or even a capital gain from the sale of an asset, making personal deductible contributions maybe an option, if your employer support is not at the cap of $27,500.
It is important to check your superannuation contributions that are recorded by your fund (most funds have some sort of online system that you can access to see details of your account – balances, contributions, etc.), before making any additional contributions to ensure you don’t exceed the cap. For those employees who are on high incomes and the employer contributions will take them over the cap, you will need to talk to your employer, in some cases, adjustments can be made to the amount the employer contributes.
It is also important to note that there are minimum standards for accepting concessional contributions by your superannuation fund – for example, age-based limits and work tests. Also, in order to claim contributions as a tax deduction on your personal tax return (so personal concessional contributions), there are notice and acknowledgement requirements. It is important that before considering making additional contributions, you talk to your accountant or financial advisor.
Unused concessional cap carry-forward
Since 1 July 2018, people can make carry-forward concessional superannuation contributions if they have a total superannuation balance of less than $500,000. Basically, if you have not used your full concessional cap in prior years, this can be carried forward (up to 5 years) and used to increase your concessional cap in a future year.
For example, in 2022 financial year, your concessional contributions were $15,000. The cap was $27,500. This means you have an additional $12,500 that you can contribute sometime in the next 5 years.
Details of your total superannuation balance and unused concessional amounts are available through the ATO online services which can be accessed via myGov or your accountant can access these details through their ATO portal.
Prior to making any additional concessional contributions using the carry forward rule, it is important that you check with your accountant or financial advisor to ensure you have met all the criteria for making the contribution.
Excess concessional contributions
For whatever reason, if you breach the concessional contributions cap, the excess amount is added to your taxable income and taxed at your marginal rate. A 15% tax offset will be applied to account for the tax already paid when the concessional contribution was made to the superannuation fund. You can elect to withdraw up to 85% of the excess concessional contributions from your superannuation fund to help pay the income tax liability. Any excess concessional contributions not withdrawn are counted towards your non-concessional cap (discussed below).
Non-concessional contributions are basically contributions that are not going to be claimed as a tax deduction and includes excess concessional contributions that people elect not to remove from their superannuation fund.
From 1 July 2022, the non-concessional contributions cap is $110,000. People under 75 years of age may be able to make non-concessional contributions up to 3 times the annual non-concessional contributions cap (so $330,000) using the bring forward rule.
Your own non-concessional cap maybe lower than this though depending on your total superannuation balance. For example, if your total superannuation balance is greater than $1.7 million, you are unable to make non-concessional contributions.
It is important that before considering making non-concessional contributions, you talk to your accountant or financial advisor.
Excess non-concessional contributions
If a person exceeds their non-concessional contribution cap, a tax of 47% is levied on the excess contribution. This tax amount must be released from their superannuation fund. If the excess non-concessional amount is due to an excess concessional contribution that a person has elected to not remove from their super fund this can mean they may pay up to 94% (!!!!) on that excess concessional contribution if they are on the top marginal rate of tax. So, you can see the importance of getting the caps correct!
It is important that, when considering any sort of personal contribution to superannuation, you consult with your accountant who has access via the ATO portal to your total superannuation fund balance, any unused concessional contributions that can be carried forward and details of non-concessional caps used in the past (to see if you have used the bring forward rule) to determine what your superannuation caps might be. You should also ensure you know what amounts your employer is contributing to your superannuation fund and if you have already made any personal contributions in the financial year. As mentioned above, most funds have some sort of online portal that you can sign into to get this information.
The above information is only general in nature and should not be considered specific advice. Each individual’s circumstances need to be assessed. For more information on any of the above please book an appointment with Avance.