Making super contributions: cracking concessional cap can mean more tax

Q: I’m 53, and I’m planning to put $24,700 of pre-tax contributions into my super account ($950/fortnight) with my employer also putting in about $7,000 a year. So, the super rules mean I can still salary sacrifice this $950/fortnight amount until July 2014, attracting only 15% tax, then every dollar contributed after that to my account over $25,000 attracts tax at my marginal tax rate, plus an interest charge. Is that right, and if so I’ll just reduce my contributions so the combined amount stays under the $25,000?

A: I am not permitted to comment specifically on your situation, but I can offer some general comments that should guide you and other readers seeking to understand how the concessional (before-tax) contributions cap works.

  1. Super contributions made under a salary sacrifice arrangement are treated as employer contributions which means they are considered ‘before-tax’ contributions, namely concessional contributions.
  2. If you exceed the concessional contributions caps of $25,000 (for those aged under the age of 60) or $35,000 (for those aged 60 year or over, for 2013/2014 year), then any contributions in excess of the relevant cap are taxed at your marginal tax rate, plus an interest charge. In addition, the excess concessional contributions count towards your non-concessional contributions cap.
  3. The higher concessional cap for over-60s for the 2013/2014 financial year, becomes more widely available from the 2014/2015 financial year. From 1 July 2014, the special $35,000 concessional cap will also be available to Australians aged 50 years and over.
  4. In short, an individual aged 59 years or under can make up to $25,000 in concessional contributions (including his or her employer’s contributions) for the 2013/2014 year. The higher cap of $35,000 is available to over-60s for the 2013/2014 year, and will be available to over-50s from the 2014/2015 year.
  5. A prudent measure for anyone who currently salary sacrifices is to review their existing strategy to ensure that they don’t exceed the concessional caps, also keeping in mind that any Superannuation Guarantee (compulsory employer contributions) contributions are counted against the concessional contributions cap.
  6. In some instances, individuals deliberately exceed the cap, and then cop the extra tax (excess contributions tax) because this strategy means they may want to get as much money as possible into an environment where the future tax on earnings is 15% (rather than earnings on investments outside of super of up to 46.5%). Anyone considering such a strategy should definitely get advice on the tax implications of taking such action.

You can find more information on concessional super contributions by checking out the following SuperGuide articles:

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IMPORTANT: SuperGuide does not provide financial advice. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Readers need to seek independent advice about their personal circumstances.

Comments

  1. Q.

    In calc of limits to pre-tax contributions to a SMSF you discuss total of employer-paid SG plus salary sacrifice (these not to exceed $50k for >50yr-old without tax penalty).

    For a federal public servant contributing to CSS there are two components to CSS contributions by employer (designated ‘CSS EPSC’ and ‘CSS ESC’). Is the sum of these to be used in calculations of pre-tax contributions? Or just the 9% SG?

    Thanks

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