The Australian Taxation Office offers you incentives to save for your retirement. This is a sweet way of saving for your golden years and reducing your current tax liability. However, all good things come to an end and that includes tax breaks on your superannuation fund. Although most of us are unlikely to get even close to these limits, they may affect you if you are close to your retirement age and you are trying to maximise the tax-saving potential of your super to the full.
Before we look into specific super caps we must understand the two main types of super contributions: concessional contributions and non-concessional contributions.
Concessional contributions include before tax contributions such as the compulsory 9% contribution paid by your employer, amounts you sacrifice from your salary to boost your super and personal contributions you make as part of your super deduction in your income tax return. For a full list of concessional contributions click here.
Non-concessional contributions, on the other hand, include after-tax contributions to your super fund, such as contributions over and above your income tax personal super deduction, contributions made by your spouse and excess concessional contributions.
The Numbers
Now to the nitty-gritty of contribution caps.
The cap for concessional contributions depends on your age and the year in which you make the contributions.
- For the 2011-2012 year (it hasn’t changed since the 2009-2010 year) the cap is $25,000, if you are under 50 years old; $50,000 if you are 50 years old or over. This means you can make a yearly contribution of $50,000 after you turn 50 and still receive the full tax benefits of concessional contributions.
- For the 2007-2008 and 2008-2009 years the caps were set at double the current caps: $50,000 for workers under 50 and $100,000 for those over 50.
The cap for non-concessional contributions is set at six times the cap for concessional contributions of the same year. For instance, the non-concessional cap for people under 50 for the 2011-2012 year is $150,000. Notice that any extra concessional contributions over and above your concessional contributions cap will automatically count toward your non-concessional contributions.
If you are under 65 years old you can contribute up to three times the yearly non-concessional cap in one year during any given three-year period. The three-year period will start with the year you first pay more than your non-concessional cap.
Penalties
It is worth taking these caps into consideration when planning your super contributions because the tax rates on contributions over the cap are steep. The tax rate for contributions over the concessional contributions cap is 31.5% on top of the standard 15% your super fund pays. The tax rate for contributions over the non-concessional cap are even worse: 46.5%.
