- Contribution Types
- Concessional Contributions
- Non-Concessional Contributions
- Exceeding Contribution Caps
- Other Points to Note with Super Contributions
- Other Tax Planning Strategies with Superannuation
- Salary Sacrifice Contributions to Super
- Super Contribution Splitting
There are a variety of different ways to get money into super that each have their own conditions, benefits and restrictions for which you should be aware for before making a contribution. These characteristics also have a tendency to change year on year, making it imperative to get the most up to date information.
Concessional contributions are payments made to your superannuation fund either by yourself or your employer as untaxed funds. These can include super guarantee or salary sacrifice amounts from your employer, or personal tax deductible contributions. On this basis, the payments are classified as ‘concessional’ due to the tax rate that is applied within the fund – 15%. Which when we consider what an individual’s personal tax rate could be (up to 47%), it can be a considerably discounted rate.
For any given year, there is a cap to which you are allowed to make concessional contributions. For the 2022 financial year we’re currently in this cap is $27,500, a little higher than the previous financial year.
Additionally, the Australian Government are continuing the Carry-Forward Unused Concessional Contributions Cap scheme, whereby eligible members are able to utilise unused caps from prior financial years and potentially contribute more than $27,500 as tax deductible contributions in the current financial year. However in order to be eligible, a members total super balance must be less than $500,000 as at 30 June of the previous financial year.
For a contribution to be tax deductible, you must submit a Notice of Intent to claim to your super fund and receive the funds written acceptance of the tax deductible amount before you lodge your tax return for the financial year. Simply making the contribution doesn’t automatically make it deductible.
There is eligibility criteria for various types of concessional contributions, including tax deductible concessional contributions, whereby members between the ages of 67 and 74 will need to meet an annual work test (or exemption). This work test specifies the contributing individual needs to have been gainfully employed for a minimum of 40 hours during a consecutive 30-day period.
These are after-tax contributions which aren’t subject to tax within the fund. We commonly see this type of contribution being utilised by members looking to boost their fund balance prior to retirement but again we need to be aware of the limitations to making such contributions.
The cap for non-concessional contributions for the 2022 financial year is now $110,000 but there is a bring-forward arrangement also available for non-concessional contributions which may be available to you.
The bring-forward non-concessional contribution cap allows eligible members to contribute up to three times the current years cap by utilising future year caps. This then means that until those future years have lapse, the non-concessional cap will not be available to you for 3 years after the contributing year.
In addition, your non-concessional cap can also be determined by your total super balance. If your total super balance is $1,700,000 or more at the end of the previous financial year, there won’t be a cap available to you.
Exceeding Contribution Caps
It’s important to point out that for each of these contributions and their respective caps, exceeding them will trigger the ATO to get in touch with you and can result in additional tax to pay.
For excess concessional contributions, the additional amounts are included in your assessable income for the year and a top up tax will be payable between your personal marginal tax rate and that super fund’s 15%.
Similarly for excess non-concessional contributions a top up tax will need to be paid, but how much can be determined by whether you choose to release the additional amounts from the fund and assess in your personal name, or leave the funds and they be assessed at the highest marginal rate.
Other Points to Note with Super Contributions
A couple of important notes for when you’re looking to make a contribution to your fund
- Check what level of contributions have already been made during the year to ensure any additional contributions will not exceed contributions caps
- Ensure you have allowed enough time for your contribution to be receipted by your fund before 30 June to be included within that financial year.
- For higher income earners close to or exceeding $250,000, you may be liable for additional tax on concessional contributions – this is known as Division 293 tax.
Other Tax Planning Strategies for Super
To maximise the concessional contributions available to you this financial year, there are tax planning strategies you may consider depending on your personal situation.
Salary Sacrifice Contributions to Super
Salary sacrificing arrangements may be another way for you to reduce your taxable income and simultaneously boost your superannuation balance.
These arrangements are set up with your employer to contribute salary and wage amounts to your fund on your behalf, known as reportable employer contributions, before they are taxed to utilise the 15% tax rate within your fund instead of your personal marginal rate. As mentioned earlier, this could be a 32% tax saving if you’re income is ordinarily taxed at the highest marginal rate.
Super Contribution Splitting
Contribution splitting your super is another way to get a little extra back in your tax return by way of a tax offset. Essentially where your spouse earns less than $37,000, you can apply to have contributions to your super fund during the year ‘split’ so that a portion is instead contributed to your spouse’s balance. Once approved, you could receive up to $540 in additional tax offsets when lodging your return.
The avenues available for your superannuation can be tricky to navigate and an area you want to make sure you get right, so we encourage you to discuss your situation with a business adviser in early June. A chat with our team at BLG will ensure you have all the necessary information specific to your circumstance to make the best decision for you. There are many opportunities to explore, so talk with us today.