Adding extra money to your superannuation can help boost your retirement savings, or the income being generated, to help you achieve or maintain the lifestyle you want when you stop working.
But the amount you can contribute, and how much the tax level will be, are determined by Federal Government laws.
These measures became law in late November 2016*, and take effect from 1 July 2017:
- Concessional or before-tax contributions: Current annual limits of $30,000 (and $35,000 for people aged 49 years and over) will be reduced to $25,000 across the board.
- Non-concessional or after-tax contributions: Current general threshold of $180,000 a year will be cut to $100,000 a year if you are under 65. As before, you are allowed to “bring forward” three years’ worth of contributions to a single year, but you can now contribute only up to $300,000 in one year.
- A $1.6m lifetime cap on amounts moving into the tax-free retirement phase. This means you may have to remove any excess money if your personal pension assets exceed $1.6m, or additional tax rates may apply.
- The income threshold that will trigger an additional 15% tax on concessional contributions is lowered to $250,000 from $300,000.
There are two main types of contributions – concessional and non-concessional.
Concessional contributions, also known as ‘before-tax contributions’, are made to your super before you pay income tax, or are tax deductible to you. These contributions are generally taxed at a ‘concessional’ rate of 15%.
Examples of concessional contributions include:
- Compulsory employer contributions – for example superannuation guarantee (SG) paid by your employer
- Voluntary employer contributions – for example contributions that you ‘salary sacrifice’, or pay into your fund from your earnings before tax
- Personal contributions that you make and claim a tax deduction for (if you’re eligible)
Currently anyone 48 or under on 30 June 2016 has a concessional contributions cap of $30,000 for that financial year and anyone aged 49 or over on 30 June 2016 has a $35,000 cap instead. Extra tax applies to concessional contributions made above your concessional cap.
The new legislation means that from 1 July 2017, the current annual limits will be reduced to $25,000 across the board.
Non-concessional contributions, also known as ‘after-tax contributions’, are contributions that you make from your own after-tax money. Eligible contributions you make for your spouse will count as a non-concessional contribution for them.
Non-concessional contributions are not subject to tax when made to your fund, except where you go beyond the non-concessional cap, in which case tax of 49% can apply on the excess amount1.
Under the new laws detailed above, the bring forward rule still applies. This allows someone under 65 to contribute three years of non-concessional contributions any time during a three-year period. The new legislation regarding the bring forward rule allows contribution of $300,000 from 1 July 2017, compared to $540,000 over three years previously.
There are no proposals to change the contribution rules that apply in the current 2016-17 financial year. If you think you might be affected, you can check the Australian Taxation Office (ATO) website, find out more from information updates, or speak to a Commonwealth Financial Planner.
You can watch this video which might help to explain the changes.
1. Where you exceed the cap, you can instead elect to withdraw your excess non-concessional contributions, plus 85% of a deemed earnings amount. 100% of the deemed earnings amount is assessable to you personally, with a 15% tax offset.
*This article was updated 1 December 2016 to reflect changes in the laws