With all the announced changes to superannuation in the latest federal budget, and much publicity over the changes and their effects on superannuation, it is a good time to review exactly what the impact is on the average superannuation investor.
The basic message is that with all the changes being made, and the punitive tax on contributing too much to super, speak to your professional advisors. The cost of getting it wrong is money out of your future retirement.
Superannuation contribution caps
There are limits imposed on the amount that can be contributed to superannuation.
There are two types of contributions:
- Concessional contributions – these are the contributions that a deduction is being claimed for, either personally or by the employer;
- Non-concessional contributions – these are personal contributions that no deduction is being claimed for.
Each of these types have different limits, which up until 30 June 2012 depend on the age of the person at the time the contributions are being made.
Concessional contributions
As there is a tax deduction claimed for concessional contributions, there are limits imposed on the amount that can be contributed to superannuation. These limits are currently based on age, and are outlined in the table below:
| 30 June 2012 | 1 July 2012 onwards | |
|---|---|---|
| < 50 y.o. | $25,000 | $25,000 |
| 50 and over | $50,000 | $25,000 |
Non-concessional contributions
Regardless of age, the maximum non-concessional contributions that can be made are $150,000 per year.There is the ability to bring forward 2 years worth of non-concessional contributions so that a maximum of $450,000 can be contributed to superannuation. However, by doing this no further non-concessional contributions can be made for 3 years.
Excess contributions tax
If the contribution caps are breached, then excess contributions tax is applied to the amounts that exceed the caps. For example, if you are under the age of 50 at 30 June 2012 and for that financial year you contribute $30,000 through salary sacrifice and superannuation guarantee, then excess contributions tax will apply to $5,000 of the contributions i.e. the amount over the concessional contributions cap. The same occurs for amounts over the non-concessional contributions cap.
If an amount exceeds the concessional contributions cap, then it is also counted towards your non-concessional contributions cap. This means that for the additional $5,000 in concessional contributions, it could get taxed twice – once under the concessional contributions cap, and again under the non-concessional contributions cap.
TIP – make sure that you keep within your caps when contributing to superannuation:
The excess contributions tax on concessional contributions is 31.5% – this increases the 15% contributions tax to the maximum marginal tax rate of 46.5%. Excess contributions tax on non-concessional contributions is 46.5%.
This means that if you exceed the concessional contributions cap, and this also causes you to exceed the non-concessional contributions cap, you could end up paying 77.5% tax on the excess amount.
As the super fund has already paid the 15% contributions tax this results in tax payable of 93% on the excess contributions made. Be careful!
