There are significant tax concessions provided on contributions paid to superannuation funds. To limit the extent of these concessions, superannuation law also places caps on the amounts that can be contributed each year.
2. Concessional and Non-Concessional Contribution Caps
contributions are contributions made from before
tax income and include compulsory superannuation
guarantee contributions made by your employer,
salary sacrifice contributions and personal
contributions where an income tax deduction is
claimed. These contributions are taxed in your
super fund at 15%.
Non-concessional contributions are contributions made from after tax income and include personal contributions made by you or your spouse for which no income tax deduction is claimed and any concessional contributions that exceed your concessional contribution cap.
The amounts of the caps are summarised in the table below:
3. The Bring-Forward Rule for Non-Concessional Contributions
If you are aged 64 or
less on 1 July, you can use the bring-forward
rule to make non-concessional contributions of
up to 3 times the non-concessional contributions
cap in the current financial year. If you
trigger the bring-forward rule, then your total
non-concessional contributions cap in the
current and next 2 financial years would be
limited to 3 times the non-concessional
contributions cap in the year the bring-forward
rule is triggered.
For example, you could use the bring-forward rule to contribute up to $300,000 (i.e. 3 times $100,000) in 2018/19. If you contributed the full $300,000 in 2018/19, then you would not be able to make any non-concessional contributions within the cap in 2019/20 or 2020/21. If you contributed more than $100,000 but less than $300,000 in 2018/19, you could still make further contributions within the non-concessional contributions cap in 2019/20 and 2020/21, provided the contributions totalled no more than $300,000 over the three years.
If you triggered the bring-forward rule in 2015/16 or 2016/17, but did not utilise the full amount available within the cap (i.e. 3 x $180,000 = $540,000) before 30 June 2017, transitional rules apply:
If you triggered the bring forward rule in 2015/16, then the total non-concessional contribution you could make in 2015/16, 2016/17 and 2017/18 would be limited to $460,000 ($180,000 + 180,000 + $100,000). If you had made more than $460,000 in non-concessional contributions before 30 June 2017, no further non-concessional contributions could be made in 2017/18.
If you triggered the bring forward rule in 2016/17, then the total non-concessional contribution you could make in 2016/17, 2017/18 and 2018/19 would be limited to $380,000 ($180,000 + 100,000 + $100,000). If you had made more than $380,000 in non-concessional contributions before 30 June 2017, no further non-concessional contributions could be made in 2017/18 or 2018/19.
Starting from the 2017/18 tax year, you cannot make non-concessional contributions in a tax year if you have a total superannuation balance of more than $1.6m on the 30 June that immediately precedes the tax year. In addition, if you are approaching a total superannuation balance of $1.6m, then your ability to use the bring-forward rule is reduced:
4. The Carry-Forward Rule for Concessional Contributions
From the 2018/19 tax
year, you may be able to take advantage of the
carry-forward rule: if you don’t use your full
concessional contribution cap in one year, then
you can carry forward the unused amount for up
to 5 years. The carry forward rule also requires
that on the 30 June immediately preceding the
tax year in which the higher contribution is
made your total superannuation balance is less
This rule only applies to unused contribution caps from the 2018/19 and later tax years, so the first tax year in which you could apply it will be 2019/20. For example, if you made concessional contributions of $19,000 (i.e. $6,000 less than the cap) in 2018/19, then you could make concessional contributions of up to $31,000 (i.e. $6,000 more than the cap) in 2019/20. Alternatively, you could make the higher concessional contribution (along with any other accumulated unused amounts) in any of the 2020/21 to 2023/2024 tax years.
5. Exceeding the Contributions Caps
If your contributions
exceed the contribution caps, then additional
taxes or penalties may apply.
For contributions in excess of the caps made in the 2013/14 and later tax years, the consequences of breaching the caps generally involve significant administrative inconvenience and a financial penalty. For contributions in excess of the caps made in the 2012/13 and earlier tax years, the additional taxes and penalties were more significant.
5.1. Concessional Contributions
If you have excess concessional contributions,
then the excess (plus an interest penalty)
counts towards your personal taxable income. The
15% contributions tax paid by your
superannuation fund would be offset against the
personal income tax you must pay. Excess
concessional contributions are also counted
towards the non-concessional contribution cap.
From 1 July 2013, if you have excess concessional contributions of less than $10,000, you can elect to have up to 85% of the excess released from your superannuation fund. In this case, the excess concessional contribution counting towards the non-concessional cap would be reduced by the amount released divided by 0.85. Note that this option will only be available to you once, for the first time you exceed your concessional contributions cap.
5.2. Non-Concessional Contributions
If you made excess non-concessional
contributions, you can elect to have them
released from your superannuation fund, along
with 85% of an “associated earnings amount”. The
associated earnings amount is usually calculated
based on the ATO’s General Interest Charge.
If you elect to withdraw the excess non-concessional contributions, then the associated earnings amount (but not the excess non-concessional contributions themselves) would be taxable at your marginal rates, less an offset of 15%.
If you don’t elect to withdraw the excess non-concessional contributions and the associated earnings amount, they will be taxed at the top marginal tax rate plus the medicare levy.
6. Other Matters
The comments below provide more details about the rules applying to market linked pensions. These comments focus primarily on the rules for selecting the term of a market linked pension and calculating the annual pension draw-downs. There are other important rules regarding market linked pensions (for example, regarding how they are taxed and their transfer balance cap implications) that are outside the scope of this article.
The concessional contribution cap (starting from
$25,000 in 2017/18) is indexed in line with the
Average Weekly Ordinary Time Earnings. However,
the cap is only changed when the indexation
takes it above the next $2,500 increment. From
the 2017/18 tax year, the non-concessional
contributions cap is set at 4 times the
concessional contributions cap, which means that
when the concessional cap is indexed, the
non-concessional cap will also be indexed.
The threshold applying to the total superannuation balance for eligibility to make non-concessional is $1.6m for the 2017/18 financial year. This threshold is indexed in $100,000 increments in line with the Consumer Price Index.
The $500,000 threshold applying to the carry-forward rule is not indexed.
6.2. Caps Applied Per Member
The contribution caps are applied on a per-member basis, which means that if a member is in two or more superannuation funds the caps apply to the aggregate contributions paid by or for that member.
Note that the information in this article does not cover every aspect of the rules around the contribution caps, superannuation contributions, or superannuation taxes. The caps on superannuation contributions are a complex area and you should seek appropriate professional advice before acting on the information in this article.
The information provided in this document is not financial product advice. It does not take into account your specific circumstances or needs. While Verus SMSF Actuaries has taken care to ensure that the information is accurate you should seek appropriate professional advice before acting on any of the information provided.
Updated November 2018