To make personal super contributions, or to not make personal super contributions? This is the question that has left humankind bemused for decades.
Well, fear no more, because right now, you’re going to learn all there is to know about personal super contributions; including the types of contributions you can make to super, the super contribution limits and the tax benefits associated. We’re going deep.
Types of Personal Super Contributions
When we refer to personal super contributions, we refer to contributions made into superannuation from your personal bank account.
Personal super contributions are either standard non-concessional contributions or concessional contributions. However, other types of contributions are downsizer contributions, small business CGT exemption contributions or personal injury contributions.
I have not included salary sacrifice contributions as personal super contributions, because these types of contributions are made directly into your super account by your employer out of your wage. So, while they are voluntary contributions, I do not consider them to be personal contributions.
Here’s a run-down of each type of personal super contribution.
Personal Non-Concessional Contributions
A standard non-concessional contribution is a contribution made into superannuation that you do not claim a tax deduction for.
A non-concessional contribution is made into superannuation simply to have more of your wealth invested in the tax-effective superannuation environment. In most cases, non-concessional contributions are not made for any immediate benefit. In saying that, non-concessional contributions can provide you with a spouse contribution tax offset or a government co-contribution.
The general non-concessional contribution cap is $110,000 per person, per financial year. However, you are able to bring-forward up to two additional years worth of the cap, allowing you to contribute up to $330,000 at any stage over a three-financial year period, with no regard to the annual cap.
Anyone under age 75 is eligible to make a personal non-concessional contribution and utilise the bring-forward rule. Yet, you are not able to make any contributions to super if your total super balance exceeded $1.9 million on 30 June of the previous financial year.
Read more: Non-Concessional Contributions
Personal Concessional Contributions
A personal concessional contribution is a contribution made into superannuation that you claim a personal tax deduction for. This is achieved by making a personal contribution to super and then notifying your super fund of your intention to claim a tax deduction for that contribution, using the appropriate form, which can be found here, or on your superannuation fund’s website.
The general concessional contribution cap, which includes salary sacrifice and employer contributions, is $27,500 per person, per financial year. Any unused caps from the previous five financial years are automatically carried forward and can be utilised in a financial year if your total super balance was below $500,000 on 30 June of the previous financial year.
If you are under age 67 you are able to make personal concessional contributions and utilise the carry forward rule. You also can if you are between 67 and 74 (inclusive), provided you meet the superannuation work test or work test exemption.
Read more: Concessional Contributions
A downsizer contribution is a contribution made to superannuation using proceeds from the sale of a home that you or your partner has owned for longer than 10 years.
To make a downsizer contribution, you need to be at least 55 years of age (no upper age limit) and the contribution needs to be made within 90 days of receiving the proceeds from the sale.
You can contribute up to $300,000 per person as a downsizer contribution. A downsizer contribution can only be made once in your lifetime.
A downsizer contribution will be classified as a non-concessional contribution, but will not count towards your personal non-concessional contribution cap.
Read more: Downsizer Contributions
Small Business Retirement Exemption Contribution
The small business retirement exemption capital gains tax (CGT) concession allows up to $500,000 worth of capital gains resulting from the sale of an active business asset to be exempt from CGT.
If you are under age 55, the exempt portion of the sale proceeds must be contributed into a complying superannuation fund. If you are aged 55 or over, you are permitted to contribute the proceeds to superannuation if you like.
A small business retirement exemption contribution will be classified as a non-concessional contribution, but will not count towards your personal non-concessional contribution cap.
Read more: Small Business Retirement Exemption
Small Business 15-Year Exemption Contribution
The small business 15-year exemption CGT exemption allows you to dispose of an active business asset without paying any CGT, provided the you are aged 55 or over and are retiring (or permanently incapacitated) and you have continuously owned the asset for at least 15-years.
You may be able to contribute the sale proceeds to superannuation without the amount counting towards your personal non-concessional contribution cap
Read more: Small Business 15-Year Exemption
Personal Injury Contributions
If you receive a personal injury payment as a result of a workers’ compensation settlement, personal injury settlement or court-order compensation or damages for a personal injury; then you may be eligible to use this amount to make a personal contribution to super and exclude all or part of it from your personal non-concessional contribution cap.
Read more: Personal Injury Payment Super Contribution
Should I Make Personal Super Contributions?
Making personal super contributions can allow you to invest more of your wealth into superannuation, where investment earnings are taxed at a maximum of 15%, reducing to 0% once you enter retirement phase. These tax rates can often be lower than the tax that would otherwise be payable if you had invested in your individual name.
Personal super contributions can also provide you with immediate benefits such as personal tax deductions, tax offsets and co-contributions.
While there are many benefits associated with personal super contributions, you also need to be comfortable that any amount you contribute to super will be inaccessible until you meet a superannuation condition of release. Therefore, if you may need the funds between now and retirement, you might think twice about contributing them to super.
Maximum Personal Super Contributions
The maximum personal non-concessional contribution cap is $110,000 per person, per financial year. This can be increased to $330,000 using the bring-forward rule.
The maximum personal concessional contribution cap is $27,500 per person, per financial year. This can be increased using carried-forward unused concessional contributions from previous years.
Are Personal Super Contributions Taxed?
The tax on personal concessional contributions depends on the type of personal contribution made.
No tax is paid on personal non-concessional contributions when they are paid into or withdrawn from superannuation.
Learn more about claiming a tax deduction for personal super contributions.
Personal concessional contributions incur contributions tax of 15% (plus an additional 15% tax for very high income earners). Concessional contributions may also incur tax when withdrawn from superannuation if you make the withdrawal under age 60, or if your super balance is paid as a death benefit to a non-tax dependant (e.g. adult child) when you pass away.
As you can see, there are a variety of personal super contributions available to you. Attempting to navigate through the ever-changing rules and contribution cap can be difficult and it can be quite easy to get it wrong – let alone optimise your contribution strategy. Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
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