The maximum superannuation Concessional (deductible) Contribution cap has been reducing quite steadily over the years. In the 2016/2017 financial year, the Concessional Contribution cap is $35,000 for individuals aged 49 years or over and $30,000 for those under age 49.
As of 1 July 2017 the Concessional Contribution cap will be a universal $25,000. Therefore, for the whole 2017/2018 financial year, the maximum that anyone is able to have contributed into their superannuation account as a Concessional Contribution is $25,000, regardless of age.
However, because Concessional (deductible) Contributions incur Contributions Tax, the amount contributed to superannuation as a Concessional Contribution is not always the amount that will be credited to your account.
What is a Concessional Contribution?
A Concessional Contribution is any contribution made into your superannuation account where the contributor claimed a tax deduction for making the contribution.
This is different to a Non Concessional Contribution, for which a tax deduction is unable to be claimed.
Types of Concessional Contributions include:
– Salary Sacrifice Contributions
– Personal Concessional (Deductible) Contributions
Also, here’s where it can get a little tricky. If you own an insurance policy that is a ‘super policy’ (excluding insurances in your ordinary super account/s), the the premiums paid to your super policy will also count towards your Concessional Contribution cap. The way to differentiate between an insurance super policy and an ordinary superannuation account that includes insurance, is that the super policy will not have an investment balance – it is purely an insurance policy that happens to be owned under a superannuation tax structure (for effective deductibility of premiums).
Tax on Concessional Contributions
The general tax rate on Concessional Contributions, affectionately referred to as Contributions Tax, is 15%. This means that if your superannuation account was to receive a total of $10,000 in Concessional Contributions throughout the financial year, then only $8,500 would be applied to your account balance, with the remaining $1,500 paid to the Government in tax.
Contributions Tax For High Income Earners
A tax known as the Division 293 Tax (due to it’s position in legislation) is an additional Contributions Tax that applies only to high income earners. The Division 293 Tax imposes an additional 15% Contributions Tax on Concessional Contributions received into the superannuation account of a high income earner. The justification behind the Division 293 Tax is to reduce the tax benefit afforded to high income earners by making or receiving Concessional Contributions compared to non-high income earners. Applying this additional 15% Contributions Tax provides more equality in the tax benefits received through Concessional Contributions across all Australians.
In the 2016/2017 financial year, a high income earner is someone whose income for surcharge purposes (disregarding reportable superannuation contributions) and their low-tax super contributions exceeds $300,000. As of 1 July 2017, this income level for the application of the Division 293 Tax will reduce to $250,000.
Low Income Super Contribution for Low Income Earners
To provide further equality across Australian income earners, the Low Income Super Contribution is a payment from the Government into a person’s superannuation account of up to $500 if the individual earns $37,000 or less. The way that the Low Income Super Contribution is calculated is equal to 15% of Concessional Contributions made into your superannuation account. This essentially achieves a rebate of the Contributions Tax paid by a low income earner. The rebate is automatically paid into the low income earner’s superannuation account based on tax return information. Therefore, it is important that your superannuation fund has your tax file number (TFN).
Excess Concessional Contributions Tax
Exceeding the Concessional Contributions Cap will result in the excess amount (i.e. the contribution amount above $25,000 from 1 July 2017) being included as income on your individual income tax return and taxed at your marginal tax rate (MTR). Click here to read more. This can also lead to the Excess Concessional Contributions Charge. However, from 1 July 2019, through the carry-forward of unused Concessional Contribution rules, some contributions in excess of the general cap may not be counted as excess Concessional Contributions.
Salary Sacrifice Contributons
Salary sacrifice contributions are contributions where a superannuation member has made an arrangement with their employer to forfeit some of their gross (before-tax) salary in exchange for equivalent increased superannuation contributions. The benefit/advantage of this is that this portion of a persons salary helps increase their retirement benefits and ensures the tax on the amount is limited to the Contributions Tax rate, rather than their (presumably higher) marginal tax rate.
One risk of this is that an employer is generally only required to pay Mandatory Superannuation Guarantee (SG) contributions on the remaining salary after the salary sacrifice amount has been deducted – effectively reducing the SG entitlement. However, many employers will honour and pay the SG rate on the grossed up salary.
Personal Concessional Contributions
Up until 1 July 2017, Personal Concessional Contributions are only permitted to be made by self-employed persons, or substantially self-employed persons meeting the 10% rule. Employees are only able to make pre-tax contributions via a salary sacrifice arrangement with their employer. However, due to some employers making it difficult to put in place a salary sacrifice arrangement, as well as other issues, the Government has announced that both employees and self-employed persons will be able to make Personal Concessional (deductible) Contributions from 1 July 2017. A tax deduction will simply be claimed for the contribution amount equal to the amount contributed.
Age Limit For Making Concessional Contributions
Personal Concessional Contributions can be made up until age 74; however a person 65 years or over must meet the superannuation work test in the year that the contribution/s is made and prior to the contribution being made.
Salary Sacrifice contributions and other Employer contributions (in excess of mandatory employer SG contributions) can be received into the superannuation account of an individual up until age 74; however a person 65 years or over must meet the superannuation work test in the year that the contribution/s is made and prior to the contribution being made.
Mandated Employer Contributions (Employer SG Contributions) can be received by anyone of any age.