As you’re probably aware, there are limits to how much you can contribute to superannuation each year.
As we know, superannuation is choc-full of rules. In fact, I could write a book on the contribution rules alone. But, I’m not going to do that. Instead, I’m going to give you a run-down of how much you can put into super based on the standard contribution caps, plus some instances in which you can contribute more than the caps.
How Much Can I Contribute to Super?
The amount you can contribute to super is based on the type of contributions you make to super.
The type of contribution you can make will either be a concessional contribution or a non-concessional contribution – each with their own cap and exceptions to the cap rules.
Concessional Contribution Cap
The general concessional contribution cap is $27,500 per person per financial year. Concessional contributions include employer contributions, salary sacrifice contributions and personal concessional contributions.
Non-Concessional Contribution Cap
The general non-concessional contribution cap is $110,000 per person per financial year. Non-concessional superannuation contributions are contributions that you make to super using after-tax dollars and don’t claim a tax deduction for.
Related article: Are Super contributions Tax Deductible?
Ways to Add More To Super
There are some exceptions to the general contribution caps that allow you to put more into super, if eligible.
Let’s take a look at some.
Carry-Forward Unused Concessional Contributions
The carry-forward unused concessional contribution rule allows you to carry-forward any unused portion of your $27,500 concessional contribution cap for five years. The unused portions accumulate and then drop-off if they remain unused during the five years they were carried-forward.
This carry-forward rule was introduced from 1 July 2018, which means you can only carry-forward unused concessional contributions from the 2018/19 financial year onwards and therefore, the first year that you can utilise any carried forward amounts is in the 2019/20 financial year.
Also, in order to utilise your carried forward unused cap amount in the current financial year, you need to have had a balance of less than $500,000 at the end of 30 June the previous financial year.
Non-Concessional Contribution Bring-Forward Rule
The non-concessional contribution bring-forward rule allows you to bring-forward up to two additional years of the non-concessional contribution cap. By doing so, you can contribute up to $330,000 at any time over a 3-year period, without needing to comply with the annual cap.
The bring-forward rule is activated in the first financial year that your non-concessional contributions exceed the general $110,000 cap.
Only individuals under age 67 are eligible to utilise the bring-forward rule and your total superannuation balance on 30 June of the previous financial year must be below the transfer balance cap of $1.7 million, with a capacity greater than the annual non-concessional contribution cap of $110,000. For years two and three of your bring forward arrangement, your bring-forward cap is reduced to nil if your super balance exceeds $1.7 million on 30 June of the previous year.
If you are over age 65, the downsizer contribution allows you to contribute up to $300,000 into your super account, using the proceeds from the sale of a home you have owned for longer than 10 years.
The $300,000 is available to each member of a couple who own the house and there is no upper age restriction on making this contribution.
The home downsizer contribution does not count towards the non-concessional contribution cap and remains available even if your super balance exceeds $1.7M. Despite not counting towards the non-concessional cap, it will be classified as a non-concessional contribution and therefore increase the tax-free component of your super balance.
Related article: What is a Downsizer Contribution?
CGT Small Business Retirement Exemption Contribution
If you sell an active small business asset, you may be eligible to have the sale be exempt from capital gains tax (CGT) up to a lifetime limit of $500,000 using the CGT Small Business Retirement Exemption. Amounts relating to this exemption can be contributed to superannuation without counting towards the non-concessional contribution limits. In fact, if you are under age 55, you must pay the CGT exempt amount to super.
Super Contributions From Personal Injury Payments
Certain personal injury payments can be contributed to super without counting towards the contribution caps. Such payments will be treated as non-concessional contributions, but can be partially or fully excluded from the non-concessional contribution cap.
To contribute a personal injury payment to super and have it excluded from the contribution caps, you will need to notify your super fund that it is a personal injury payment by completing the form required by your fund.
Related article: Average Superannuation Balance by Age
Super Contribution Restrictions
When making contributions to super, you need to be mindful of any restrictions that may limit your eligibility to contribute to super, such as age, the transfer balance cap and work test requirement.
Contributing Too Much To Super
So, what happens if you contribute too much to super? Well, the intention of the superannuation rules is to not punish you for contributing too much to super, but rather adjust your overall tax position to be the same as it would have been had you not exceeded the contribution caps. That is, the ATO tries to remove the tax benefits you received from exceeding the cap and recoup any tax that they have missed out on.
For example, if you exceed the concessional contribution cap, the excess amount will be assessed and taxed at your individual tax rate and paid by you personally, minus the 15% contributions tax paid when it went into super, which is what would have occurred had you not exceeded the cap.
Related article: Superannuation Contributions Cap
You can decide to remove the excess contributions from super, or leave it within super. If you remove the excess, you will also be required to pay top-up earnings tax, as you were receiving concessional tax treatment on earnings while the excess contributions were in your account. If you decide to leave the excess contributions in super, it will count towards your non-concessional contribution cap.
If you exceed the non-concessional contribution cap, you can elect to release the excess plus 85% of associated earnings and pay personal top-up tax on those earnings, or leave the excess contributions within super and pay excess non-concessional contributions on the excess amount, equal to the top personal marginal tax rate.
Knowing how much you can contribute to super can allow you to maximise your super contributions for a tax-effective retirement strategy, while ensuring you do not deal with the complications and potential extra tax associated with exceeding the caps.