Important changes to superannuation contribution caps
Some good news for those taking advantage of the tax benefits of making super contributions: under wage indexation provisions the government is increasing the contributions caps in the forthcoming 2014/2015 financial year.
There are two types of superannuation contributions you can make:
- Concessional: these are often referred to as before-tax contributions and are called concessional because they are taxed at the concessional superannuation tax rate. These are typically the Superannuation Guarantee contributions made by your employer, your salary sacrificed contributions or self-employed contributions.
- Non-concessional: these are often referred to as after-tax contributions. These are voluntary contributions you make out of your own pocket in order to take advantage of the tax benefits of superannuation.
Both kinds of contributions are subject to a cap to stop people pouring too much money into superannuation and so reducing the amount of tax the government would get. It is that cap that is being increased. The table below shows the new concessional contribution limits.
| Financial year | Under 50 | 50 to 59 years | 60 years and over |
| 2012-13 | $25,000 | $25,000 | $25,000 |
| 2013-14 | $25,000 | $25,000 | $35,000 |
| 2014-15 | $30,000 | $35,000 | $35,000 |
As usual the Tax Office hasn’t lost the opportunity to make things a little complicated: the new caps are available if you reach the age limit during the financial year. So, if you are 49 years or older on 30 June 2014 you will be eligible for the new higher cap of $35,000 because you will be 50 years old at some point during the 2015 financial year. Likewise if you were 59 years old on 30 June 2013 you are eligible for the higher cap of $35,000 for this financial year.
Non-concessional contributions and the 3 year bring forward
The annual non-concessional cap will increase from $150,000 in 2013-14 to $180,000 in 2014-15.
This makes a big difference to the ‘bring-forward rules’, which allows people who are under 65 years of age to pay the current year’s worth of contributions as well as the next two all in the one year. That means you will be able to contribute as much as $540,000 in one hit into your super fund, compared to the current maximum of $450,000.
However, you need to be aware that if you want to pay three years’ worth of non-concessional contributions in this financial year (2013-14), you cannot take advantage of the higher amounts for the next two years. That is, you will be limited to $450,000 for the three years – a meaningful difference of $90,000.
If you want to maximise the amount you can get into your superannuation fund and you’re the right age, you can consider a non-concessional contribution of $150,000 prior to 30 June 2014, and then make another contribution of $540,000 in July 2014. That would be a total of $690,000 that you can get into your super fund.
It is important you receive advice prior to making contributions into superannuation, as the cost in getting it wrong is significant. So don’t hesitate to call Steward Wealth to discuss whether this is an appropriate strategy for you. You definitely want to maximise your opportunities in superannuation, but you also definitely don’t want to overdo it because you risk getting whacked with penalty taxes.
