How do you make the most out of your contributions and what are the rules?
What are Concessional Super Contributions?
Concessional super contributions are payments put into your super fund from your pre-tax income and are generally tax deductible. They include your employer’s super guarantee contributions (SGC). Concessional super contributions are taxed at 15% when they are received by your super fund.
The concessional cap is generally $27,500 per year, however if you have unused concessional contribution amounts from up to 5 previous years, you may be eligible to carry them forward to combine and use in future years. To be eligible to do this, your total super balance must be less than $500,000 at 30 June of the prior financial year.
What are Non-Concessional Super Contributions?
Non-concessional super contributions are payments you deposit into your super fund from your savings or income you have already paid tax on. They are not taxed when they are received by your super fund.
What is the Non-Concessional Contributions Cap?
The non-concessional contributions cap is the maximum amount of after-tax contributions you can contribute to your super each year without contributions being subject to extra tax.
From July 2021, the non-concessional contributions cap is $110,000. This is now reviewed annually to remain in line with average weekly ordinary time earnings (AWOTE). If you choose to contribute more, you will be subject to pay extra tax.
If you make contributions above the annual non-concessional contributions cap you may be eligible to automatically access future year caps. This is known as the bring-forward arrangement. It allows you to make extra non-concessional contributions without having to pay extra tax if you meet certain eligibility conditions.
If your total super balance is equal to or more than the general transfer balance cap ($1.7 million from 2021–22, $1.9 million from 2023–24) at the end of the previous financial year, your non-concessional contributions cap is nil ($0) for the current financial year.
Understanding your Super Contributions Cap & the transactions that can affect it.
- Be aware of your non-concessional contributions cap, including your eligibility for the bring forward arrangement.
- Be aware of your total super balance.
- Keep track of the amount of non-concessional contributions you, your employer or others make on your behalf.
- If you have more than one job, or pay money into more than one super fund, include all your contributions when working out your annual contributions. The total of all your contributions made to all your funds during a financial year count towards your non-concessional contributions cap.
- Any amount you withdraw and re-contribute to your super fund is counted as a new non-concessional contribution unless you have claimed and have been approved a deduction for this amount or it is a re-contribution of the COVID -19 early release superannuation amount.
- You are only eligible to bring forward the next two years of contributions if you are under 75 years (67 years for 2021-2022, 65 years for 2020-21 and prior years) on the 1st of July of the first financial year in which your total super balance on the 30th of June of the previous financial year was less than $1.48 million (from 1st of July 2021 and 1.68 million from July 1st 2023.
Keeping track of your Non-Concessional Contributions
You can keep track of your non-concessional contributions by using ATO Online Services:
Select the Super tab > then Information > then Non-Concessional Contributions.
Be aware of Timing Conditions
- Keep track of your non-concessional contributions and when they are received by your super fund. Contributions count towards a cap in the year your super fund receives them.
- Make sure your fund receives all your contributions before the 30th of June, if that’s what you intend.
- If someone else, such as a financial planner, accountant or employer makes contributions on your behalf, check they make contributions in time to be received in your fund by the end of the financial year, if this is what you intend.
- If you make contributions by BPAY, intend the transfer or similar at the end of the year, check the terms and conditions of your financial situation and allow for any possible delays.
- Check if your contributions are held in another account or by another institution before they are received by your fund, as this can cause delays.
Bring-Forward Arrangement – What is it?
Your non-concessional contributions cap can be changed if you’re eligible for the bring-forward arrangement.
This allows you to bring forward the equivalent of 1-2 years of your annual cap from future years. This means you can make contributions up to 2 or 3 times the annual cap amount in the first year of the bring-forward period. Any amount of the bring-forward cap that is unused in the first year can be used in the remaining 1-2 years.
Eligibility for the bring forward arrangement depends on your age and your total super balance. Apart from these criteria, there are age related and other restrictions on the types of non-concessional contributions your fund may be able to accept.
If you exceed your Non-Concessional Contributions Cap
if you exceed your non-concessional cap:
- The ATO will send you a determination explaining your options.
- You must lodge a tax return for that year. If you can’t lodge your tax return by the due date, and you don’t want us to issue a determination before you lodge, you’ll need to lodge a deferral request.
- We will issue your super fund with an authority to release funds depending on the option you have chosen.
- You may need to pay extra tax.
The ATO determines if you exceed your non-concessional contributions cap based on the information reported by your super fund, tax return and age bracket.
You should not apply to have your super fund release money because you exceeded your cap. Wait until the ATO issue you a determination letter and you have selected the option of how the excess will be treated. The ATO will then send a release authority.
What are the options if you exceed the cap?
You have 60 days to choose one of the two options for paying your tax when you receive your determination letter.
Option 1: Release the excess from your super fund. You can release all your excess non-concessional contributions plus 85% of your associated earnings from your super funds. If you do, the ATO will amend your income tax assessment to include your associated earnings and a non-refundable tax offset of 15% of the associated earnings.
Option 2: Do not release the excess amount and pay excess non-concessional contributions tax. The excess amount is taxed at the highest marginal rate plus the Medicare levy.
The ATO will always make you aware if you have exceeded the non-concessional contributions cap, or if you are close to doing so. In any case when it comes to your non-concessional contributions, it is very important to know how much in non-concessional contributions is going into your superannuation fund and how often you are doing it.
Should you wish to discuss the benefits of concessional & non-concessional contributions as well as strategic superannuation tax planning, please contact us through our details below.
Phone: (08) 9477 3288
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