One area of superannuation law that regularly causes consternation is the limit on amounts that can be contributed to superannuation funds without losing concessional tax treatment. These limits are known as the contributions caps.
Before looking at the cap amounts, a distinction needs to be drawn between concessional contributions and non-concessional contributions. Concessional contributions are generally those contributions made from pre-tax income, such as compulsory employer contributions and amounts salary sacrificed by an employee.
Non-concessional contributions are those made from post-tax income, such as post-tax personal contributions.
Importantly, excess concessional contributions are counted towards the non-concessional contributions cap.
The contribution caps for the financial year ending 30 June 2015 are age-dependant and are set out below:
|Age at 30 June 2014||Concessional||Non-concessional|
|49 or older||$35,000||$180,000|
Individuals under 65 may also “bring forward” another two years of the non-concessional cap, giving a total effective cap of $540,000. Therefore, if an individual made a non-concessional contribution of $540,000 during the year ending 30 June 2015, without making any other non-concessional contributions for the next two years, the cap will not be exceeded, provided the “bring forward” has not already been utilised in the years ending 30 June 2013 and 2014.
Whenever an individual exceeds the non-concessional contributions cap in a single year then the next two years’ cap is automatically brought forward.
Example 1: Tom sells an investment property and wants to place the sale proceeds in his superannuation account. On 1 February 2015, he deposits $300,000 into his superannuation account. This is his only non-concessional contribution for the year and he has not previously brought forward the cap for the 2015 financial year.
Tom has exceeded the non-concessional cap of $180,000 for the 2015 year and therefore the next two years are automatically brought forward.
This bring forward results in Tom not being viewed as exceeding the cap, however he can now only make non-concessional contributions of $240,000 (being $540,000 less the $300,000 already contributed) over the next two years before exceeding the cap.
Please note the non-concessional cap for the year ending 30 June 2014 and prior years was $150,000. Therefore, if the “bring forward” was triggered in that year, or earlier, then the total non-concessional contributions cannot exceed $450,000 ($150,000 x 3), even if the bring forward period covers the 2015 and 2016 financial years.
Example 2: The same facts apply as in Example 1, except that Tom deposited $300,000 into his superannuation account on 1 February 2014, rather than 2015. The non-concessional contribution of $300,000 would have exceeded the non-concessional cap of $150,000 for the year ended 30 June 2014, thereby triggering the automatic bring forward provision. Now, Tom can only make non-concessional contributions of up to $150,000 (being $450,000 less the $300,000 already contributed) over the years ending 30 June 2015 and 2016 before exceeding the cap. The lower cap applies because the non-concessional cap for the year ended 30 June 2014 was $150,000, not $180,000.
Bringing forward non-concessional contributions can be beneficial for individuals given that earnings in their superannuation fund are taxed at rates that are generally lower than their marginal tax rates. The earnings on Tom’s $300,000 will be taxed at 15% in the superannuation fund, as opposed to a maximum of 49% if he invested outside the superannuation fund.
You should note that contributions are counted towards a cap in the financial year in which the superannuation fund actually receives the amount, not when the contribution is paid by you.
A subsequent article will explain the consequences of contributing amounts to a superannuation fund in excess of the caps.