Superannuation Contribution Caps
1. Introduction
There are significant tax concessions provided on contributions paid to superannuation funds. To limit the extent of these concessions, superannuation law also places caps on the amounts that can be contributed each year.
2. Concessional and Non-Concessional Contribution Caps
Concessional
contributions are contributions made from before
tax income and include compulsory superannuation
guarantee contributions made by your employer,
salary sacrifice contributions and personal
contributions where an income tax deduction is
claimed. These contributions are taxed in your
super fund at 15%.
Non-concessional
contributions are contributions made from after
tax income and include personal contributions
made by you or your spouse for which no income
tax deduction is claimed and any concessional
contributions that exceed your concessional
contribution cap.
The amounts of the
caps are summarised in the table below:
3. The Bring-Forward Rule for Non-Concessional Contributions
If you are aged 64 or
less on 1 July, you can use the bring-forward
rule to make non-concessional contributions of
up to 3 times the non-concessional contributions
cap in the current financial year. If you
trigger the bring-forward rule, then your total
non-concessional contributions cap in the
current and next 2 financial years would be
limited to 3 times the non-concessional
contributions cap in the year the bring-forward
rule is triggered.
For example, you could
use the bring-forward rule to contribute up to
$300,000 (i.e. 3 times $100,000) in 2018/19. If
you contributed the full $300,000 in 2018/19,
then you would not be able to make any
non-concessional contributions within the cap in
2019/20 or 2020/21. If you contributed more than
$100,000 but less than $300,000 in 2018/19, you
could still make further contributions within
the non-concessional contributions cap in
2019/20 and 2020/21, provided the contributions
totalled no more than $300,000 over the three
years.
If you triggered the bring-forward
rule in 2015/16 or 2016/17, but did not utilise
the full amount available within the cap (i.e. 3
x $180,000 = $540,000) before 30 June 2017,
transitional rules apply:
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If you triggered the bring forward rule in 2015/16, then the total non-concessional contribution you could make in 2015/16, 2016/17 and 2017/18 would be limited to $460,000 ($180,000 + 180,000 + $100,000). If you had made more than $460,000 in non-concessional contributions before 30 June 2017, no further non-concessional contributions could be made in 2017/18.
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If you triggered the bring forward rule in 2016/17, then the total non-concessional contribution you could make in 2016/17, 2017/18 and 2018/19 would be limited to $380,000 ($180,000 + 100,000 + $100,000). If you had made more than $380,000 in non-concessional contributions before 30 June 2017, no further non-concessional contributions could be made in 2017/18 or 2018/19.
Starting from the 2017/18 tax year, you cannot make non-concessional contributions in a tax year if you have a total superannuation balance of more than $1.6m on the 30 June that immediately precedes the tax year. In addition, if you are approaching a total superannuation balance of $1.6m, then your ability to use the bring-forward rule is reduced:
4. The Carry-Forward Rule for Concessional Contributions
From the 2018/19 tax
year, you may be able to take advantage of the
carry-forward rule: if you don’t use your full
concessional contribution cap in one year, then
you can carry forward the unused amount for up
to 5 years. The carry forward rule also requires
that on the 30 June immediately preceding the
tax year in which the higher contribution is
made your total superannuation balance is less
than $500,000.
This rule only applies to
unused contribution caps from the 2018/19 and
later tax years, so the first tax year in which
you could apply it will be 2019/20. For example,
if you made concessional contributions of
$19,000 (i.e. $6,000 less than the cap) in
2018/19, then you could make concessional
contributions of up to $31,000 (i.e. $6,000 more
than the cap) in 2019/20. Alternatively, you
could make the higher concessional contribution
(along with any other accumulated unused
amounts) in any of the 2020/21 to 2023/2024 tax
years.
5. Exceeding the Contributions Caps
If your contributions
exceed the contribution caps, then additional
taxes or penalties may apply.
For
contributions in excess of the caps made in the
2013/14 and later tax years, the consequences of
breaching the caps generally involve significant
administrative inconvenience and a financial
penalty. For contributions in excess of the caps
made in the 2012/13 and earlier tax years, the
additional taxes and penalties were more
significant.
5.1. Concessional Contributions
If you have excess concessional contributions,
then the excess (plus an interest penalty)
counts towards your personal taxable income. The
15% contributions tax paid by your
superannuation fund would be offset against the
personal income tax you must pay. Excess
concessional contributions are also counted
towards the non-concessional contribution cap.
From 1 July 2013, if you have excess
concessional contributions of less than $10,000,
you can elect to have up to 85% of the excess
released from your superannuation fund. In this
case, the excess concessional contribution
counting towards the non-concessional cap would
be reduced by the amount released divided by
0.85. Note that this option will only be
available to you once, for the first time you
exceed your concessional contributions cap.
5.2. Non-Concessional Contributions
If you made excess non-concessional
contributions, you can elect to have them
released from your superannuation fund, along
with 85% of an “associated earnings amount”. The
associated earnings amount is usually calculated
based on the ATO’s General Interest Charge.
If you elect to withdraw the excess
non-concessional contributions, then the
associated earnings amount (but not the excess
non-concessional contributions themselves) would
be taxable at your marginal rates, less an
offset of 15%.
If you don’t elect to
withdraw the excess non-concessional
contributions and the associated earnings
amount, they will be taxed at the top marginal
tax rate plus the medicare levy.
6. Other Matters
The comments below
provide more details about the rules applying to
market linked pensions.
These comments focus primarily on the
rules for selecting the term of a market linked
pension and calculating the annual pension
draw-downs.
There are other important rules regarding
market linked pensions (for example, regarding
how they are taxed and their transfer balance
cap implications) that are outside the scope of
this article.
6.1. Indexation
The concessional contribution cap (starting from
$25,000 in 2017/18) is indexed in line with the
Average Weekly Ordinary Time Earnings. However,
the cap is only changed when the indexation
takes it above the next $2,500 increment. From
the 2017/18 tax year, the non-concessional
contributions cap is set at 4 times the
concessional contributions cap, which means that
when the concessional cap is indexed, the
non-concessional cap will also be indexed.
The threshold applying to the total
superannuation balance for eligibility to make
non-concessional is $1.6m for the 2017/18
financial year. This threshold is indexed in
$100,000 increments in line with the Consumer
Price Index.
The $500,000 threshold
applying to the carry-forward rule is not
indexed.
6.2. Caps Applied Per Member
The contribution caps are applied on a per-member basis, which means that if a member is in two or more superannuation funds the caps apply to the aggregate contributions paid by or for that member.
6.3. Limitations
Note that the information in this article does not cover every aspect of the rules around the contribution caps, superannuation contributions, or superannuation taxes. The caps on superannuation contributions are a complex area and you should seek appropriate professional advice before acting on the information in this article.
The information provided in this document is not
financial product advice.
It does not take into account your
specific circumstances or needs.
While Verus SMSF Actuaries has taken care
to ensure that the information is accurate you
should seek appropriate professional advice
before acting on any of the information
provided.
Updated November 2018