Types of contributions
01 July 2020
Making contributions to super
When making contributions to superannuation you should keep in mind the types of contributions that can be made and their applicable limits.
Contribution limits, or ‘caps’ as they are known, have been a part of super for many years. Penalties may apply if you exceed these caps. The caps relate to you as an individual, so you need to keep track of the contributions you and your employer make to super across all your super funds. At BUSSQ, we can see what contributions have been made to your BUSSQ account, but we cannot access the details on any other contributions you or another employer may make to another fund. Ultimately, keeping within your contribution limits is your responsibility.
To help ensure you keep under the caps, here is an overview of some of the key contributions rules:
Concessional Contributions Cap
Concessional contributions are those made for you by your employer or by you if you salary sacrifice some of your pay into super, or contributions you claim as a tax deduction (known as personal deductible contributions). The concessional contribution cap is $25,000.
You can carry forward any unused concessional contributions cap amounts for up to five consecutive years providing your total super balances are less than $500,000 (see Carry Forward Unused Concessional Contributions).
If you exceed the cap the excess concessional contributions will be taxed at your marginal tax rate, less 15% which was the tax you’d already paid when you first made contributions to the Fund. In addition, you will also be charged interest, which is determined by the ATO, for exceeding the cap.
Non Concessional Contributions Cap
Non concessional contributions are also known as voluntary or after-tax contributions. This cap is separate to the above concessional contributions cap. The limit under this cap is $100,000 for the 2019/20 financial year.
Since 1 July 2017, if you have a combined balance of $1.6 million or more across all your super accounts, you are unable to make non-concessional contributions. If you do, you will exceed your cap. If your balance is close to $1.6 million, you will only be eligible to make non-concessional contributions up to the $1.6 million limit.
If you happen to go over your non-concessional cap, you can withdraw the excess. An associated earnings amount will be calculated by the ATO to approximate the amount of interest earned from the excess non-concessional contributions while they were held in your superannuation fund, and this amount will then be included in your assessable income.
If you choose not to withdraw your excess contributions, they will be taxed at the top marginal tax rate, and this tax must be paid from your super fund, using the release authority provided by the ATO.
Bring Forward Non-Concessional (after tax) Contributions
The current non-concessional contributions cap is $100,000 per year. However, the bring-forward rule allows eligible super fund members to make up to $300,000 of non-concessional (after-tax) contributions in a single year. This means that, over the three years they will not exceed the cap. To be eligible to use the bring forward rule, you must be under the age of 67 and your superannuation account balance must be under the $1.6 million cap.
For example, Dave who is 61 years old and has a $400,000 superannuation balance, inherits $260,000 and he decides to put that money into super rather than the bank. Dave takes advantage of the ‘bring forward’ rule and tops up his super account with the $260,000 in a single year. Because Dave hasn’t gone over the $300,000 he can still make further non-concessional deposits, up to $40,000, into his super over the next two financial years.
Carry Forward Unused Concessional Contributions
From 1 July 2018, you may be able to carry forward unused concessional contributions cap amounts. The first year in which you can increase your concessional contributions cap by the amount of unused cap is 2019–20, but only if you have a total superannuation balance of less than $500,000 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.
Let’s take a look at how Sam carried forward unused concessional contributions:
During 2018–19 to 2021–22, Sam has minimal super contributions as he is working part-time while completing studies. His super balance is continuing to grow with earnings and a small amount of super contributions but in 2020–21 his account balance reduced due to negative returns in that year. Sam has unused cap amounts for each of the 2018–19 to 2021–22 financial years.
|General contributions cap||$25,000||$25,000||$25,000||$25,000||$25,000|
|Cumulative available unused cap||n/a||Nil||$22,000||Nil||$69,000|
|Maximum cap available||$25,000||$25,000||$47,000||$25,000||$94,000|
|Super balance 30 June previous year||n/a||$480,000||$490,000||$505,000||$490,000|
|Available unused cap for relevant financial year to be carried forward||Nil||$22,000||$22,000||$25,000||$25,000|
Note: This table assumes no indexing of general cap.
Sam would be entitled to use the unused concessional cap amounts in 2019–20 and 2021–22 as his total super balance at the end of 30 June in the year immediately preceding was less than $500,000.
Sam would not be able to use his unused concessional cap contributions in 2020–21 as his total super balance at the end of 30 June of the previous year was $505,000.
In 2021–22 Sam returns to work. For that year he has a maximum concessional cap amount available of $94,000 ($69,000 plus $25,000) for 2021–22 and is eligible to contribute this amount as this total super balance at the end of 30 June 2021 was now less than $500,000.
If you are under age 67 there is no requirement to be working before you can contribute to super. If you are between 67 and 74, you must meet the work test or the work test exemption before contributions can be made.
To meet the work test you must be gainfully employed for at least 40 hours over 30 consecutive days during the financial year.
The work test exemption applies if you were gainfully employed for at least 40 hours over 30 consecutive days in the previous financial year and had a total superannuation balance of less than $300,000 on 30 June that year. You cannot however claim the work test exemption if you have claimed it in a previous financial year.
If you make a contribution to BUSSQ, and you do not meet the work test requirements, we are legally required to refund your contribution.
Making contributions to super can be complex and if you’d like advice on the contribution limits call us on 1800 692 877 and speak to one of Skylight Financial Solutions financial specialists.