Given the complexities of the legislation that governs superannuation, and the various strategies available, a comprehensive discussion on contributions could fill an entire book.
This article explains the basic types of contributions that can be made to super.
Concessional contributions are made from your pre-tax earnings (money earned before income tax is accounted for). They may be paid by an employer (9.5% super guarantee), salary sacrificed contributions or personal contributions. A tax deduction is claimed by the person or entity making the contribution.
These contributions are taxed at 15% in the super fund.
There is a maximum amount that can be deemed as a concessional contribution per financial year per individual. From 1 July 2017 the cap is $25,000 per individual, regardless of age.
It was only in very limited circumstances that you could claim a personal tax deduction for any contributions you made if you were an employee. As of 1 July 2017, anyone can claim a personal tax deduction for contributions they make to super. This in addition to contributions made to super by their employer. The total is attributed to the concessional contributions cap of $25,000 mentioned above.
If you wish to claim a tax deduction for contributions made personally, you must complete and provide your super fund with a notice of intent and have this notice acknowledged in writing by your fund.
Non-concessional contributions are made from post-tax money. They are not taxed in the super fund.
From 1 July 2017 the cap on non-concessional contributions per financial year per individual is $100,000.
If you are under the age of 65 as at 1 July you may ‘bring forward’ two years’ worth of contributions. That is, you may contribute more than $100,000 by bringing forward the cap from future years. You can still only contribute a maximum of $300,000 over three years.
Age Limit on Contributions
If you are 65 years of age or older, you cannot make a personal super contribution (either concessional or non-concessional) without meeting the work test. The work test requires you to have been gainfully employed for at least 40 hours over 30 consecutive days during the financial year.
Once you are 75 years of age or older personal contributions cannot be made to super, even if you meet the work test.
The only contributions that can be made on behalf of someone over the age of 75 are ‘employer mandated’ contributions.
Excess Contributions Tax (ECT)
If contributions are made in excess of the caps prescribed then an additional tax is imposed. Where the excess relates to concessional caps, the amount that exceeds the cap is then counted against your non-concessional cap. There are elections that may be made to avoid additional tax and general interest charges.
Kimberlee is the SMSF Director at H&R Block.
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