Common contributions into our superannuation might assist to raised put together us for a extra financially safe retirement. On this article, we cowl the superannuation contributions caps that apply.
On this article:
- How do tremendous contributions work?
- What are concessional superannuation contributions?
- What’s the new concessional contribution cap?
- What are ‘carry ahead’ concessional contributions?
- What are non-concessional superannuation contributions?
- What’s the new non-concessional contribution cap?
- What’s the bring-forward rule?
- Can I contribute $300,000 to my superannuation?
- What occurs if I contribute greater than the restrict into my superannuation?
How do tremendous contributions work?
For eligible workers, obligatory tremendous contributions are made by your employer along with your earnings. Presently, this charge is 10% of your base wage, following a rise from 9.5% that got here into impact on 1 July 2021. These contributions are meant to bolster retirement financial savings and change or complement the Age Pension to your retirement. This is called the Superannuation Assure.
You might also select to make extra contributions out of your pre-tax or after-tax earnings or financial savings to assist maximise your nest egg. Limits to those contributions, referred to as caps, are set by the Australian Taxation Workplace (ATO). They’re reviewed yearly and listed periodically based mostly on common earnings in Australia. In case you exceed your tremendous caps, it’s possible you’ll must pay additional tax.
There might be a number of tremendous adjustments for shoppers to get their heads round this 12 months. Key takeaway – take duty for selecting a fund that works for you. Right here’s my wrap up of the massive adjustments set to take impact in 2021. https://t.co/zzm3cQgUZi #superannuation #retirement
— Ellie McLachlan (@E_McLachlan) January 7, 2021
What are concessional superannuation contributions?
Concessional contributions are made out of your pre-tax earnings. Generally, these are the contributions your employer makes based mostly on necessities for the superannuation assure. Different kinds of concessional tremendous contributions embody voluntary contributions comparable to wage sacrificing, in addition to any private contributions you make and declare a tax deduction for. As soon as in your tremendous fund(s), these contributions are taxed at 15%, in response to the ATO.
What’s the concessional contribution cap?
- Present concessional contribution cap = $27,500 every monetary 12 months
From 1 July 2021, the restrict in your concessional contributions enhance from $25,000 to $27,500 every monetary 12 months, no matter your age. The brand new cap is listed to common weekly atypical time earnings (AWOTE), rounded to the closest $2,500, so the cap has the potential to vary once more sooner or later.
What are ‘carry ahead’ concessional contributions?
In case you don’t use your entire concessional contribution cap in a given 12 months, you may ‘carry ahead’ the unused portion to extend the quantity you may pay within the subsequent 12 months. In response to the ATO, you may hold doing this for as much as 5 years, at which level the oldest carry-forward quantity will expire. Nevertheless, it’s best to observe you can solely profit from this in case your tremendous steadiness is lower than $500,000 on the finish of the earlier monetary 12 months. Keep in mind that the carry-forward rule has solely existed because the 2019–20 monetary 12 months, so the earliest 12 months you’ll be capable of carry ahead from could be 2018–19.
→ Learn extra: What are concessional contributions?
In case you’re evaluating superannuation funds, the comparability desk under shows among the merchandise at the moment obtainable on Canstar’s database for Australians aged 30-39 with a steadiness of as much as $55,000, sorted by Star Ranking (highest to lowest), adopted by firm identify (alphabetical). Use Canstar’s superannuation comparability selector to view a wider vary of tremendous funds.
Price, efficiency and asset allocation data proven within the desk above have been decided in response to the funding profile within the Canstar Superannuation Star Rankings methodology that matches the age group specified above.
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What are non-concessional superannuation contributions?
You too can make non-concessional contributions into your superannuation, that are contributions out of your after-tax earnings. These embody any contributions created from your financial savings and out of your partner, in addition to after-tax contributions by your employer in your behalf. Non-concessional contributions will not be taxed in your tremendous fund, in response to the ATO.
What’s the non-concessional contribution cap?
- Present non-concessional contributions cap = $110,000 every monetary 12 months
From 1 July, 2021, the cap on non-concessional contributions elevated from $100,000 to $110,000, recommendation from the ATO states. This restrict applies to everybody, together with folks aged between 67 and 74, so long as they meet the work check or can use the work check exemption.
Word that within the Could 2021 Federal Funds, the Authorities put ahead a plan to largely put off the work check. If this turns into legislation, the ATO explains, folks aged 67 to 74 will be capable of make voluntary or salary-sacrificed contributions without having to satisfy the work check (topic to the conventional contribution caps mentioned above).
What’s the switch steadiness cap?
The switch steadiness cap is a lifetime restrict on the whole quantity of superannuation that may be transferred into tax-free retirement earnings accounts, together with pensions and annuities. Presently, your non-concessional contributions restrict is $0 in case your mixed tremendous steadiness, throughout all accounts, is the same as or larger than the final switch steadiness cap of $1.7 million (elevated from $1.6 million from 1 July 2021 onwards).
What’s the bring-forward rule?
In case you contribute above the annual non-concessional contributions cap, it’s possible you’ll be eligible to mechanically achieve entry to future 12 months caps and thus doubtlessly keep away from paying additional tax, in response to the ATO. This is called the bring-forward association. Your age and tremendous steadiness as of 30 June within the earlier monetary 12 months will have an effect on your eligibility for the bring-forward rule. Presently it’s only obtainable if you’re 65 or youthful.
Additional adjustments to bring-forward preparations are earlier than the Australian Parliament on the time of writing, with the most recent data obtainable from the ATO web site.
→ Learn extra: What’s the bring-forward rule and the way does it work?
Can I contribute $300,000 to my superannuation without delay?
Eligible Australians aged 65 and over have been capable of make an excellent contribution of as much as $300,000 every from the proceeds of promoting their most important residence (house) since mid-2018. These ‘downsizer’ contributions don’t depend in the direction of both the concessional or non-concessional contribution caps and will not be topic to the work check or common switch steadiness cap. Nevertheless, funds contributed to tremendous utilizing a downsizer contribution do depend in the direction of your switch steadiness cap.
Word that below a change proposed within the Could 2021 Funds, the downsizer contribution scheme might be expanded to permit eligible folks aged 60 or over to make a downsizer contribution. This transformation isn’t but legislation however will seemingly take impact from 1 July, 2022.
What occurs if I contribute greater than the restrict into my superannuation?
It’s necessary to regulate your superannuation contributions to be sure you don’t exceed the bounds, as any extra can incur an additional tax legal responsibility for you except you make use of an exception that permits you to make additional contributions, such because the carry-forward rule, the bring-forward rule or the downsizer contributions rule.
It might be price in search of recommendation out of your tremendous fund or a professional adviser if you want recommendation tailor-made to your circumstances.
What occurs if I exceed my concessional contributions cap?
In case you exceed your concessional contributions cap, the surplus quantity might be included in your assessable earnings and taxed at your marginal tax charge, which means you might have to pay additional tax. The ATO advises a 15% tax offset might be utilized to the surplus quantity to account for the tax already paid by your tremendous fund. It’s possible you’ll elect to withdraw as much as 85% of your extra contributions out of your tremendous fund to assist pay your earnings tax legal responsibility.
The ATO will let you understand through a dedication letter and a Discover of Evaluation must you exceed your concessional contributions cap and have extra earnings tax to pay. The dedication letter will inform you of any actions it’s essential to take and what choices it’s important to settle the matter.
What occurs if I exceed my non-concessional contributions cap?
In case you exceed your non-concessional contributions cap, the ATO will inform you after assessing data out of your tremendous fund and your tax return (if you happen to lodged one). You’ll obtain a dedication letter explaining your choices and should lodge a tax return for that 12 months.
The ATO will handle the discharge of extra cash out of your tremendous, plus any related earnings the surplus quantity accrued whereas in your tremendous fund. The related earnings minus a 15% tax offset might be added to your assessable earnings and taxed at your marginal tax charge. Alternatively, you can elect to not launch the surplus contribution out of your tremendous fund, during which case, you’ll pay 47% tax on your complete extra non concessional contributions.
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Further reporting in July 2021 by our Sub Editor Tom Letts to account for adjustments introduced within the Federal Funds.