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SO…HOW MUCH CAN I CONTRIBUTE?
There are two types of contributions that can be made to superannuation. These are known as Concessional (pre-tax) contributions and Non-Concessional (post-tax) contributions. There are contribution caps that determine the maximum amount that can be contributed in any one year for each type of contribution.
A Concessional contribution is a contribution made to superannuation where a tax deduction has been claimed. This includes contributions such as the Superannuation Guarantee Charge (SGC), salary sacrifice and personal deductible contributions. Concessional contributions incur contributions tax of 15% upon entering superannuation. From 1 July 2012, this contributions tax increases to 30% on Concessional contributions for individuals with an income greater than $300,000.
The maximum Concessional contribution that can be made into the account of a superannuation member is dependant on their age. Currently, a member under the age of 50 is able to have contributions of up to $25,000 made to their account as a Concessional contribution in any one year. For those over age 50, the cap is $50,000. However, as of 1 July 2012, the Concessional contribution cap will be a universal $25,000 for all members regardless of age. In saying this, the Government has announced that members over age 50 will be able to have up to $50,000 (potentially $55,000 due to indexation) contributed to their accounts as a Concessional contribution from 1 July 2014 if their superannuation member balance is below $500,000.
A ‘non-concessional’ contribution is a contribution made to superannuation with after-tax dollars – where income tax has already been paid. No tax is incurred on this type of contribution upon entering superannuation.
The maximum Non-Concessional contribution that can be made in any one year is $150,000. However, members under the age of 65 have the ability to ‘bring forward’ two years’ worth of the Non-Concessional cap. This means that up to $450,000 may be contributed in any one year, with no further Non-Concessional contributions being made for the following two years. The ‘bring forward’ rule is triggered in a financial year if more than $150,000 is contributed as a Non-Concessional contribution.
Exceeding the Cap
Where a member receives Concessional contributions in excess of their relevant cap, the excess amount is subject to excess contributions tax of 31.5% and the amount in excess will then count towards their Non-Concessional cap.
For various reasons, many individuals have been incurring excess contributions tax as a result of circumstances out of their control. From the 2012 financial year, new measures in place provide certain individuals with the ability to have excess contributions refunded to them and taxed at their marginal tax rate, so as not to incur excess contributions tax. However, this is only available in limited circumstances where the excess contributions equal less than $10,000 and there are no excess contributions for an earlier financial year (excluding years prior to 2012). This option for a refund is only available once for each individual’s lifetime. It is not available in the years subsequent to a refund being claimed.
In cases where the Non-Concessional contributions cap is exceeded, excess contributions tax of 46.5% is incurred. This is after income tax has already been paid on the amount contributed.
There are some instances where 93% in tax on contributions could be payable. This occurs when the Non-Concessional contribution cap has been reached and a Concessional contribution is made, which causes the Concessional contribution cap to be exceeded. In this case, the concessional contribution will incur contributions tax of 15% and then excess contributions tax of 31.5% for exceeding the Concessional contribution cap. Because the contribution has exceeded the Concessional cap, it will count towards the Non-Concessional cap. However, because the Non-Concessional cap had already been reached, excess contributions tax of 46.5% will be payable for exceeding the Non-Concessional cap – totalling 93% in excess contributions tax.
Contribution caps for relevant years (excluding indexation):
Ideally, all contributions should be made to your superannuation account a couple of weeks prior to the end of the financial year. The end of the tax year is a hectic time for superannuation funds. By getting your contributions in early, it should ensure that any delays in transaction or processing time will not affect your ability to claim a tax deduction in the current financial year.
For more information, please go to www.smsfeducation.com.au