For the 2012/2013 year, only one concessional (before-tax) contributions cap exists for all ages, and that cap is $25,000. Before July 2012, we had a concessional cap for under-50s and a concessional cap for those 50 years and over.
From the 2013/2014 year, we will have a special concessional cap for over-60s of $35,000, and from the 2014/2015 year onwards, individuals aged 50 years and over will also be able to take advantage of the special concessional cap of $35,000.
Throughout 2013, SuperGuide, as always, will regularly update readers on any proposed changes to the contributions caps (and other super changes), and the implications of such changes on super strategies.
Note: Since 1 July 2012, anyone earning more than $300,000 must pay 30% tax on concessional contributions paid into a super fund, doubling the super tax bill for high-income earners. The current contributions tax is a flat rate of 15%, and this applies to all concessional contributions made on behalf of individuals earning less than $300,000.
The list of 10 Q&As set out below answer many of questions that I have received on the contributions caps.
1. What counts as a concessional contribution?
Concessional contributions are before-tax contributions that can include employer contributions, contributions made under a salary sacrifice arrangement and tax-deductible contributions by an individual. You, or your employer, generally receive some type of tax advantage when a concessional contribution is made to a super fund. More specifically, quoting directly from the ATO website:
[concessional contributions include:]
- employer contributions, including personal contributions by an eligible person (such as a self-employed person) that are allowed as an income tax deduction
- compulsory super guarantee contributions
- any additional voluntary contributions your employer may make
- salary sacrifice amounts
- any fund costs paid by your employer on behalf of your super fund, such as administration fees and insurance premiums
- notional taxed contributions for a defined benefit interest
- assessable amounts transferred from reserves (as defined by the regulations to the legislation)
- the part of the taxable components of all your transitional termination payments in excess of $1 million that is attributable to a directed termination payment
- an amount transferred from a foreign fund that is in excess of your vested amount at the time of the transfer
- other amounts that are included in the assessable income of your super fund – for example
- the shortfall component of super guarantee charge paid to a fund by the ATO
- transfers from the superannuation holding accounts (SHA) special account that are not super co-contributions.
2. What is the concessional contributions cap for the 2012/2013 year?
The concessional contributions cap for the 2012/2013 year (1 July 2012 to 30 June 2013) is $25,000 for all ages. In previous years, there was a special higher concessional cap for those 50 years and over, but that is not the case for the 2012/2013 financial year.
Important: Being aware of the contributions caps is very important. For previous financial years, and for the 2012/2013 year, if you exceed your concessional contributions cap, your excess contributions above the cap are subject to an additional 31.5% tax, in addition to the usual 15% contributions tax. Presumably if you’re a high-income earner (earning more than $300,000 a year) already paying 30% contributions tax, you will be hit with an additional 16.5% tax, taking the total to 46.5%, although I have not yet seen the specific legislation making this change to the excess contributions tax rules. For the financial years from July 2013, the federal government has announced that it will allow individuals to withdraw any excess concessional contributions made from 1 July 2013 from their super fund. These excess concessional contributions will be taxed at the individual’s actual marginal tax rate, plus an interest charge (as would happen for income tax paid late to the ATO), rather than the top marginal tax rate. If you’re already on the top marginal tax rate, then you will be only hit with a new interest charge.
Background: The concessional contributions caps for the 2011/2012 year (1 July 2011 to 30 June 2012) were $25,000 (for under-50s), and $50,000 (for individuals aged 50 years and over). The special over-50s cap does not apply for the 2012/2013 year.
3. If I am under 50 at the start of the 2012/2013 year but turn 50 during that year, what is my concessional cap for 2012/2013?
For the 2012/2013 year, the fact that you’re 50 years or over, or under 50 years, is irrelevant when making concessional contributions to a super fund. Your concessional cap is $25,000 for the 2012/2013 year, regardless of your age.
For the 2013/2014 year however, if you’re aged 59 year or over on 30 June 2013, then your concessional contributions cap is $35,000. For 2014/2015 year, if you’re aged 49 years or over on 30 June 2014, then your concessional cap is $35,000 for the 2014/2015 financial year.
Background: In recent previous years, the transitional cap of $50,000 applied if you were 50 years or over on the last day of the financial year, according to section 292.20 of the Income tax (transitional provisions) Act 1997. For example, a person who turned 50 in May 2012 could contribute $50,000 in the 2011/2012 financial year. Based on the reading of the Act, it didn’t seem to matter if you made the contribution before or after you turned 50 provided that you were 50 (or older) on the last day of the financial year in which you make the concessional contribution to your fund. Note that this higher concessional cap opportunity for over-50s is no longer available. See previous paragraph for new rules coming into effect from July 2013 and from July 2014.
4. I want to contribute $50,000 in concessional contributions, but I have more than $500,000 in my super account. Does that mean my cap is $25,000 for this year?
Everyone’s concessional cap is $25,000 for the 2012/2013 year. The proposed rule that you refer to – extending the over-50s cap for the 2012/2013 year onwards for those with less than $500,000 in their super account – is a dead duck policy. You can have an unlimited amount of super in your super account and still be able to make $25,000 in concessional contributions (subject to taking into account your employer’s Superannuation Guarantee contributions in that combined $25,000 total). For the 2012/2013 year, it is not possible for anyone to contribute $50,000 in concessional contributions, unless they are willing to be hit with excess contributions tax. From the 2013/2014 year, over-60s can contribute $35,000 in concessional contributions, and from the 2014/2015 year, over-50s can make up to $35,000 in concessional contributions.
5. I am self-employed and over 50 years of age. What is my concessional cap for the 2012/2013 year?
Your concessional cap is $25,000 for the 2012/2013 year, and the fact that you’re aged 50 years or over is not relevant when determining the contributions cap. Note that you must also satisfy other requirements when making tax-deductible super contributions. For example, a self-employed person planning to claim a tax deduction for a super contribution must notify their super fund in writing before they lodge their tax return for the financial year, or by the end of the financial year following the year the contribution was made, whichever is earlier.
For more information check out the ATO website: here’s an ATO link to get you started.
Background: In recent previous financial years, anyone aged 50 years or over was eligible for the special $50,000 concessional cap, provided they satisfied other requirements. The $50,000 cap is no longer available, although a temporary cap of $35,000 will be available to over-50s from the 2014/2015 year, and to over-60s from the 2013/2014 year.
6. I want to make concessional contributions for the 2012/2013 and split the contributions with my wife so they are directed to her super account. Can I?
An individual can split concessional (before-tax) contributions with a spouse provided that the super fund the individual belongs to permits contribution splitting. Only 85% of the contribution reaches the spouse account because super funds deduct the 15% contributions tax before splitting. If an individual plans to split super contributions with a spouse, then the receiving spouse must be under the age of 65. The individual making the contribution must complete a special form stating they intend to split super contributions. If you plan to claim a tax deduction for super contributions, then that notice to claim a deduction must be lodged before the super splitting declaration.
Note: You can only split contributions made in the previous year. For example, contributions made during the 2012/2013 year can only be split during the 2013/2014 year. The full amount of the original contributions counts towards your concessional contributions cap, not your spouse’s.
Note: Since 1 July 2012, anyone earning more than $300,000 must pay 30% tax on concessional contributions paid into a super fund (rather than 15%), which presumably means that individuals in these circumstances end up splitting only 70% of the contributions, with the rest redirected to the taxman.
7. I am over 65 and want to take advantage of the concessional cap. I consider myself retired but I do work intermittently. Can I make a concessional contribution?
Anyone aged 65 or over must satisfy a work test, before contributing. If you’re aged 65 or over (but under the age of 75), you can make super contributions (concessional or non-concessional) if you’re at least gainfully employed on a part-time basis. What this means is that you must work for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which you plan to make a super contribution. The work test can be satisfied when “employment” involves any endeavour where you receive remuneration for your efforts, including farming, babysitting, cleaning, lawnmowing, gardening, consulting and paid employment. You will need to confirm with the tax office whether your arrangements satisfy the work test rules.
Note: Volunteer work does not count towards the 40-hour work test.
8. What is the concessional contributions cap for the 2013/2014 year
The general concessional cap for the 2013/2014 year (1 July 2013 to 30 June 2014) is $25,000 for all age groups, apart from those aged 60 years or over. From the 2013/2014 year, the government is introducing a special temporary concessional cap of $35,000 for over-60s, which will be expanded to over-50s from the 2014/2015 year.
9. What is the concessional cap for the 2014/2015 year?
The concessional cap for under-50s for the 2014/2015 year (1 July 2014 to 30 June 2015) will increase to $30,000. From July 2014, individuals aged 49 year or over on 30 June 2014, will be able to make up to $35,000 in concessional contributions for the 2014/2015 year.
10.Will the $25,000 concessional cap be indexed?
The $25,000 concessional applies to everyone for the 2012/2013 year. The $25,000 cap was supposed to be indexed three years ago but the Government turned back time and didn’t index the caps. In November 2011, the Government announced that they would again freeze the $25,000 contribution cap for the 2012/2013 and 2013/2014 years. The $25,000 cap is likely to be indexed to $30,000 for the 2014/2015 year. Fingers crossed!
For more information on super contributions…
Check out the following SuperGuide articles:
- Super concessional contributions: 2012/2013 survival guide
- Your 2012/2013 guide to non-concessional (after-tax) contributions
- Cashing in on the co-contribution rules (2012/2013 year)