With the new financial year, the changes to superannuation concessional (before-tax) contributions come into effect. This sees the cap reduced from $35,000 for those 50 and over or $30,000 for under-50s, to $25,000 (for all age groups).
What is counted as a concessional contribution?
Concessional contributions, also known as before-tax contributions, include your employer’s compulsory contributions (Superannuation Guarantee), additional employer contributions, and any salary sacrificed contributions that you arrange for your employer to deduct from your before-tax salary. Concessional contributions also include tax-deductible super contributions and any defined benefit employer contributions.
Note: Until 30 June 2017, only the self-employed, or those not employed, or those who satisfy the 10% rule, could make tax-deductible super contributions. However, from 1 July, employees can also make tax-deductible super contributions as a lump sum rather than having to make additional contributions via salary sacrifice.
As a result of the lower $25,000 contribution cap, it is recommended that salary sacrifice amounts be reviewed to ensure they do not exceed the cap. An example is detailed below:
Eric: Eric is 48 and earns $100,000 plus his employer’s 9.5% SG contributions of $9,500 (total package of $109,500). Last financial year Eric salary sacrificed $20,000 (or $769.23 per fortnight), Eric was planning to again salary sacrifice $20,000 for the 2017/2018 year.
If Eric proceeds with his strategy he will exceed his cap by $4,500 ($25,000 super cap less $9,500 less $20,000). Therefore, Eric will need to reduce his salary sacrifice amount to $15,500 for the year ($596.15 per fortnight) in order to remain under the cap.
What if I exceed my concessional contributions cap?
If you exceed your concessional cap the excess concessional contributions will then be taxed at your actual marginal tax rate, plus an interest charge (as would happen for income tax paid late to the ATO). If you’re already on the top marginal rate, then your super contributions will be subject to an interest charge only. The excess contributions are eligible for a 15% tax offset, to allow for the 15% contributions tax already deducted from the super contribution upon entry to the super fund. You can then elect to withdraw the excess funds (after the additional tax has been paid) or you can retain the funds in super and they will be added to your after-tax (or non-concessional) contributions cap. However, if you already have more than $1.6m in pension phase you are not eligible to make after-tax contributions and will need to withdraw the excess funds.
Additional Note
From July 2018 onwards, if you do not use all of your annual concessional contributions cap of $25,000, then you can carry forward the unused portion for up to 5 years, provided you have a total superannuation balance of less than $500,000.
If you have any further questions in relation to this article please contact Adam or your Altitude Adviser.
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