Superannuation is designed to be a tax-effective method to save for retirement, however do you know there are limits on how a lot you’ll be able to contribute each earlier than and after tax?
Understanding the distinction between concessional and non-concessional contributions, and the best way every is handled, could make it easier to take advantage of your tremendous account.
This text covers:
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- What are concessional contributions?
- What’s the concessional contribution cap?
- What are carry-forward concessional contributions?
- What are non-concessional contributions?
- Learn how to keep inside your tremendous contributions caps
What are concessional contributions?
Concessional contributions, additionally known as before-tax contributions, are the funds that go into your tremendous account out of your before-tax revenue. Your concessional contributions can come from a number of totally different sources, resembling employer superannuation assure quantities, a wage sacrifice association you’ve made together with your employer, or tax-deductible contributions (e.g., for those who’re self-employed or determine to make additional contributions your self). Concessional contributions usually make up the majority of your tremendous financial savings and are typically taxed at 15%, in line with the Australian Tax Workplace (ATO).
What’s the concessional contribution cap?
For the 2021-22 monetary yr, the concessional contribution restrict (or cap) is $27,500. The ATO explains that any concessional contributions you make above the cap are included in your taxable revenue and are taxed at your marginal tax charge, plus an extra concessional contributions cost.
Previously, there have been totally different limits for concessional contributions relying in your age, however from the 2017–18 monetary yr onwards the foundations had been simplified. Now, the restrict is $27,500 no matter your age.
An essential level to notice is that for those who break up your before-tax contributions and provides some to your partner, these contributions nonetheless depend in direction of your concessional cap.
What are carry-forward concessional contributions?
When you’ve got not reached the concessional contribution cap for a selected monetary yr, you might be able to carry the distinction ahead to extend your cap in a subsequent yr.
This carry-forward rule (to not be confused with the bring-forward rule we’ll cowl in a while on this article) solely applies to unused concessional cap quantities from July 2018 onwards and any quantities eligible to be carried ahead expire after 5 years. You’ll be able to solely carry ahead concessional contributions in case your tremendous stability was lower than $500,000 on the finish of 30 June within the earlier yr, the ATO says. Carry-forward concessional contributions are generally known as ‘catch-up’ contributions.
What are non-concessional contributions?
Non-concessional contributions are, as you in all probability guessed, tremendous contributions made out of your after-tax revenue. From 1 July 2021, the annual non-concessional contributions cap is $110,000, however the bring-forward rule permits eligible individuals to extend this quantity by utilizing a few of their cap from future years within the present yr.
Non-concessional contributions aren’t taxed after they’re obtained by your tremendous fund, however as soon as the cash is added to your account, any funding earnings might be topic to the standard superannuation tax charge of as much as 15%, in line with the ATO. While you entry your tremendous sooner or later, your non-concessional contributions might be returned to you tax-free.
If you happen to make non-concessional contributions, you might also be eligible for an excellent co-contribution as much as $500 from the Australian Authorities. This profit applies to low- or middle-income earners, and is labored out based mostly on each your revenue and the quantity you add to your tremendous account. There’s no want to use for it, and the profit is paid mechanically to your tremendous account once you lodge your tax return, in case your tremendous fund has your tax file quantity (TFN).
From the 2021-22 monetary yr onwards, in case your complete tremendous stability is bigger than $1.7 million on 30 June in a given monetary yr, your non-concessional contributions cap and bring-forward quantity accessible might be $0 within the subsequent yr.
Learn how to keep inside your tremendous contributions caps
Exceeding the caps on tremendous contributions might be expensive, as additional tax and different prices could apply, in line with the ATO.
The ATO says that you simply might be able to keep away from going above the caps by taking steps, resembling:
- being conscious of what your present caps are
- holding tabs of what your tremendous stability is
- checking when your employer (or employers, you probably have multiple job) pays the contributions and after they had been obtained by your tremendous fund. The ATO says contributions depend in direction of a cap within the yr your tremendous fund receives them, not after they had been paid.
- contemplating stopping or lowering any before-tax voluntary contributions to your tremendous, for those who assume you might go over your concessional contributions cap within the present monetary yr.
In case you are uncertain about how the caps could have an effect on you based mostly in your circumstances, or are in search of steering about the right way to maximise your retirement financial savings utilizing concessional or non-concessional contributions, it could be helpful to hunt the help of a monetary adviser, both by means of your tremendous fund if recommendation is obtainable or from an exterior monetary planner.
If you happen to’re at present evaluating Superannuation funds, the comparability desk under shows a number of the merchandise at present accessible on Canstar’s database for Australians aged 30-39 with a stability of as much as $55,000, sorted by Star Score (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 line with the funding profile within the Canstar Superannuation Star Scores methodology that matches the age group specified above.
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