We receive many questions about the concessional contributions caps. Throughout 2014 and into 2015, 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.
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?
- 2. What is the concessional contributions cap for the 2014/2015 year?
- 3. What was the concessional contributions cap for the 2013/2014 year?
- 4. Is there a special concessional cap for over-50s?
- 5. If I turn 50 during the year, can I access the higher concessional cap?
- 6. I am self-employed. What is my concessional contributions cap?
- 7. I want to make concessional contributions for the 2014/2015 year and split the contributions with my wife so they are directed to her super account. Can I?
- 8. 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?
- 9. What happens if I exceed my concessional contributions cap for the 2014/2015 year (or the 2013/2014 year?
- 10. Will the concessional cap for over-50s be indexed?
Note: Since 1 July 2012, anyone earning an adjusted taxable income of more than $300,000 must pay 30% tax on concessional contributions paid into a super fund, doubling the super contributions 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 additional 15% tax for high-income earners is known as Division 293 tax.
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 such as
- compulsory Superannuation Guarantee contributions
- any additional voluntary super contributions your employer may make
- any fund costs paid by your employer on behalf of your super fund, such as administration fees and insurance premiums
- the equivalent of your employer contributions under a defined benefit scheme as determined by the trustee
- salary sacrifice amounts
- personal contributions by an eligible person (such as a self-employed person) that are allowed as an income tax deduction
- transfers from reserves (as defined by the regulations to the legislation)
- the taxable component of a directed termination payment (or the total of directed termination payments plus any transitional eligible termination payments) in excess of $1 million.
2. What is the concessional contributions cap for the 2014/2015 year?
Due to indexation the general concessional contribution cap is higher for the 2014/2015 financial year, and the special temporary cap for older Australians has been expanded to 50-somethings.
The concessional contributions cap for the 2014/2015 year (1 July 2014 to 30 June 2015) is:
- $30,000 (for those aged 48 years or under on 30 June 2014), and
- $35,000 (for those aged 49 years or over on 30 June 2014).
3. What was the concessional contributions cap for the 2013/2014 year?
For the 2013/2014 year, there was a special concessional cap for over-60s, more specifically if you were 59 years or older on 30 June 2013, then your cap for the 2013/2014 year was $35,000.
If you were 58 years or younger on 30 June 2013, then your concessional cap for the 2013/2014 year was $25,000.
Background: For the 2012/2013 year, only one concessional (before-tax) contributions cap existed for all ages, and that cap was $25,000. Before July 2012, we had a concessional cap for under-50s and a concessional cap for those 50 years and over.
For your easy reference, the table below summarises the concessional contributions caps for the 2014/2015, 2013/2014 and 2012/2013 years.
Concessional contributions cap for 2014/2015 year (and earlier years)
|Income year||Under 50||50 years to 59 years*||60 years and over*|
|*If you are 59 years of age or older as at 30 June 2013 then you were eligible for the higher concessional cap of $35,000 for the 2013/2014 year. If you are 49 years of age or older as at 30 June 2014, then your concessional contributions cap for the 2014/2015 year is $35,000.|
4. Is there a special concessional cap for over-50s?
Yes. 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. If you’re aged 48 years or under on 30 June 2014, then your concessional cap is $30,000.
For the 2013/2014 year, if you were aged 59 year or over on 30 June 2013, then your concessional contributions cap was $35,000.
Background: In recent previous years, a 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, and the timing rule, is no longer available.
5. If I turn 50 during the year, can I access the higher concessional cap?
The answer is yes for the 2014/2015 year, but no for the 2013/2014 year.
The general concessional cap is $30,000 for the 2014/2015 year, and was $25,000 for the 2013/2014 year.
A special higher concessional cap exists for older Australians:
- If an individual turns 50 during the 2014/2015 year (that is, he or she was aged 49 years on 30 June 2014), then he or she can access the special concessional cap of $35,000 for the 2014/2015 year. If he or she was already 50 at the start of the 2014/2015 financial year, then the $35,000 cap also applies.
- If an individual turned 60 during the 2013/2014 year (that is, he or she was aged 59 years on 30 June 2013), then he or she could access the special concessional cap of $35,000 for the 2013/2014 year. If he or she was already 60 at the start of the 2013/2014 financial year, then the $35,000 cap also applied.
6. I am self-employed. What is my concessional contributions cap?
Self-employed Australians are subject to the same contributions caps as employed Australians.
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 on tax-deductible contributions see SuperGuide article Who can make tax-deductible super contributions?
7. I want to make concessional contributions for the 2014/2015 year 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 2014/2015 year can only be split during the 2015/2016 year. Contributions made during the 2013/2014 year can only be split during the 2014/2015 financial year.
The full amount of the original contributions counts towards your concessional contributions cap, not your spouse’s cap.
Important: 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 effectively splitting only 70% of the contributions, with the rest redirected to the taxman.
8. 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.
9. What happens if I exceed my concessional contributions cap for the 2014/2015 year (or the 2013/2014 year?
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.
Important: Being aware of the contributions caps is very important. For previous financial years, including for the 2012/2013 year, if you exceed your concessional contributions cap, your excess contributions above the cap can be subject to an additional 31.5% tax, in addition to the usual 15% contributions tax.
Note: Effective from 1 July 2011 until 30 June 2013, individuals who have breached the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them. You can only make this request if you have breached the concessional caps for the first time. From 1 July 2013, you are permitted to withdraw all excess super contributions made on or after 1 July 2013.
10. Will the concessional cap for over-50s be indexed?
The temporary higher cap of $35,000 for over-50s (and for over-60s during the 2013/2014 year) was introduced as a compromise when the former ALP government cancelled its policy to introduce a $50,000 cap for over-50s.
At the time, the ALP government stated the special cap would not be indexed which means that it will eventually merge into the general concessional cap (which is indexed). We estimate this will happen from 1 July 2018.
The Liberal government has not made any comment regarding the indexation or otherwise of this special cap.
For more information on super contributions…
Check out the following SuperGuide articles:
- Super concessional contributions: 2013/2014 survival guide
- Your 2013/2014 guide to non-concessional (after-tax) contributions
- Cashing in on the co-contribution rules (2013/2014 year)