SUPERANNUATION CONCESSIONAL CONTRIBUTION CONTRIBUTIONS AND CAPS

Superannuation Concessional Contributions and Contribution Caps

Concessional contributions are superannuation contributions that you or your employer make with 'before-tax' dollars, including salary sacrificing. If you are self-employed, you make your own concessional contributions before tax.

In contrast, non-concessional contributions are spouse contributions and any contributions you make from 'after-tax' dollars.

Most of your superannuation balance comprises concessional contributions, which the ATO taxes at 15% currently. However, there is a limit to how much you can make in concessional contributions before you have to pay extra tax. This is called a ‘contribution cap’.

It is important to understand how the contribution cap works and how much you can contribute, as you might have to pay more tax if you exceed it.

Contribution cap amount

In the 2021–22 and 2022–23 financial years, the contribution cap is $27,500 regardless of your age. (Between 2017–18 and 2020–21, it was only $25,000.)

If you have more than one fund, all the concessional contributions for all your funds are added together and counted towards your concessional contributions cap.

‍Excess contributions

If you make more contributions over and above the cap, these are called ‘excess contributions’. The ATO will include these contributions in your taxable income and tax them at the marginal rate, rather than 15%.

In previous years, you were also required to pay an excess concessional contributions charge, but this is no longer charged as of 1 July 2021.

You are allowed to withdraw up to 85% of your excess concessional contributions from your super fund to help pay for the extra tax.

‍Carrying forward unused cap amounts

Your concessional contribution cap might be higher if you have unused amounts from previous years.

If you have a superannuation balance of less than $500,000 at 30 June, you may be allowed to carry forward any part of your cap that you did not use and use it for extra contributions over the next five years.

For example, if you only contributed $20,000 this year, you could contribute the $7,500 and the usual $27,500 in the next year ($35,000).

The 2018-19 financial year is the first year that you can carry forward unused amounts, and they expire after five years. You can check your available concessional contributions cap on ATO online services (through myGov).

Other things to note

• If your combined income and concessional contributions add up to more than $250,000, you may have to pay extra tax on the super contributions. This is known as Division 293. The ATO will send you a notice of assessment if this is relevant.

• Your super fund may decline some types of contributions, depending on your age and work status.

• If you split your concessional contributions between you and your spouse, they are still considered your contributions and count towards your cap.

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As you can see, the contribution cap rules are complex. You can read more on the ATO website or contact our office with any question at admin@optimumadvisory.com.au or on 02 9821 2455.