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How super contributions caps work

One of the most tax-effective ways to boost your retirement savings is to put additional money into your super – and once you know how the caps on super contributions work, you can take advantage of the available tax concessions.

This makes sense as, by staying within the super contributions caps, you can reduce the amount of tax you need to pay. These limits or caps generally depend on your age and the type of super contributions you make.


Below we take a look at what you need to know about concessional and non-concessional super contributions:


1. Concessional (before-tax) super contributions

These are super contributions you make before you pay tax on them. They generally include:

  • Contributions made by your employer, such as Super Guarantee (SG)
  • Salary sacrifice payments you choose to make from your before-tax income
  • Personal concessional super contributions – for example, contributions you make if you’re self-employed.


Concessional super contributions are generally only taxed at 15 per cent, which means you could lower your taxable income.

What is the concessional super contributions cap?
 

As of 1 July 2017, you can make up to $25,000 in concessional contributions in a financial year. If you go over this cap, additional tax applies.


What happens if you go over the concessional super contributions cap?


The amount of your excess concessional super contributions is included in your assessable income and you pay an interest charge.

If you do not choose to withdraw your excess concessional contributions from super, the excess will also count towards your non-concessional superannuation contributions cap.

2. Non-concessional (after-tax) super contributions

These are superannuation contributions you make from sources that have already been taxed. They generally include:

  • Super contributions from your take home pay or savings when no tax deduction has been claimed
  • Certain super contributions made by your spouse on your behalf.


What is the non-concessional super contributions cap?

From 1 July 2017, these contributions are capped at $100,000 a year. If you’re under age 65 any time during a year, you’re able to apply the ‘bring-forward’ rule. This allows you to make up to three years’ worth of non-concessional contributions totaling $300,000 at any point during a three-year period.

In addition, the Government no longer allows you to make any further non-concessional contributions once your total super balance reaches $1.6 million.


What happens if you go over the non-concessional super contributions cap?


You can choose to withdraw the excess non-concessional amount from super and 85 per cent of an ‘associated earnings amount’, or how much your excess contributions earned while in your super account.

The total amount of associated earnings will then be included in your assessable income for the year and taxed at your marginal rate.

Otherwise, excess non-concessional super contributions will be taxed at 49 per cent.

 

There are eligibility requirements to keep in mind:

  • If you’re aged between 65 and 74 and want to make voluntary super contributions, you need to pass a work test. This means you need to have worked at least 40 hours within 30 consecutive days in the financial year before you contribute further to your super.
  • If you’re 75 or over, you won’t be able to make voluntary contributions to super.These eligibility rules don’t apply to your employer’s SG contributions – they can be made at any time, regardless of your age.


For more information about super contributions and how they might impact your financial situation, speak to a financial adviser.

Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.