Superannuation contributions: Wearing two caps

SUPER ALERT! On 3 May 2016, the federal government announced an IMMEDIATE cut to the non-concessional contributions cap, including a cessation of the bring-forward rule. Australians are now subject to a lifetime non-concessional cap of $500,000, rather than the annual cap of $180,000 (and the  bring-forward rule allowing up to $540,000 over a 3-year period for under-65s). Although this change has immediate effect, from 3 May 2016 (7.30pm), it is still subject to legislation and subject to the Coalition winning the July 2016 Federal Election. Note that the non-concessional contributions caps explained in the article below no longer apply from 3 May 2016 (subject to legislation).

Q: Are the caps relating to ‘concessional’ and ‘non-concessional’ contributions regarded as separate? Put simply, can I contribute $30,000 concessional and $540,000 non-concessional sums (a total contribution of $570,000) to my super fund for the 2015/2016 year?

A: ‘Yes’ is the answer to the first part of the question. The contributions caps are separate because the non-concessional cap relates to after-tax contributions, and the concessional cap relates to before-tax contributions. Concessional contributions include any employer’s Superannuation Guarantee contributions and salary-sacrificed contributions. Tax-deductible contributions are also treated as concessional contributions.

How do the concessional contributions cap work?

‘Yes’ can also be the answer to the second part of the question (can I contribute $30,000 concessional and $540,000 non-concessional contributions), assuming you are under the age of 50 at the end of the previous financial year. In plain English, what this means is: the concessional (before-tax) contributions cap for Australians aged 49 years or under for the 2015/2016 year, is $30,000. More specifically, if a person is aged 48 years or under on the 30 June 2015 (for the 2015/2016 year cap), then an individual is subject to a $30,000 annual concessional cap.

Australians aged 49 years and over on 30 June 2015 have a special annual concessional contributions cap of $35,000 for the 2015/2016 financial year.

Since July 2014, the concessional cap for under-50s, known as the general concessional cap, is indexed in $5,000 increments in line with increases in Average Weekly Ordinary Times Earnings (AWOTE). The general concessional cap applies to under-50s until it eventually reaches $35,000, and then a single concessional contributions cap will apply for all ages (see table below), and will continue to be indexed periodically in line with AWOTE.

Concessional contributions cap for 2015/2016 year (and earlier years)

Income yearUnder 5050 years to 59 years*60 years and over*
*If you are 49 years of age or older as at 30 June 2015 then you are eligible for the higher concessional cap of $35,000 for the 2015/2016 year. If you were 49 years of age or older as at 30 June 2014, then your concessional contributions cap for the 2014/2015 year is $35,000. *If you were 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. 

Note: Any contributions in excess of these concessional (before-tax) caps are subject to extra tax, or will need to be withdrawn from your super account. If the excess concessional contributions are retained in the super account, those excess concessional contributions then count towards an individual’s non-concessional (after-tax) cap. For more information on excess contributions rules, see SuperGuide article Excess contributions rules: A quick summary.

How do the non-concessional contributions caps work?

Note: Since the 2014/2015 financial year, the annual non-concessional cap increased to $180,000 and the bring-forward cap increased to $540,000. The cap remains at these levels for the 2015/2016 year.

Assuming an individual is under the age of 65, he or she can make up to $540,000 in non-concessional (after-tax) contributions in one year (for the 2015/2016 year), representing his or her annual $180,000 cap for three years, subject to some restrictions. If you’re aged 65 years or over, the maximum amount of non-concessional contributions that you can make in one year is $180,000 (for the 2015/2016 year).

The non-concessional contributions cap is $180,000 (for the 2015/2016 year) and up to $540,000 when taking advantage of the ‘bring-forward’ rule. The non-concessional (after-tax) bring-forward rules applies to individuals under the age of 65: Again, if an individual is 65 or over, he or she can only make after-tax contributions of up to $180,000 each year rather than $540,000 over a three-year period (which is only available to those under the age of 65).

The rules outlined above mean that an individual can make a total of $210,000 for the 2015/2016 year (or $215,000 if aged 49 years or over on 30 June 2015) in super contributions in a year and remain within the contributions caps, assuming the mix of concessional and non-concessional contributions remains within each cap. Further, individuals under the age of 65 can take advantage of the bring forward rules for non-concessional contributions, which means you can contribute up to $540,000 in one year (for the 2015/2016 year), representing your non-concessional contributions cap over a three-year period (subject to restrictions).

An individual can then potentially make $570,000 (or $575,000 if aged 49 years or over on 30 June 2015) in super contributions for the 2015/2016 year, subject to the meeting specific contributions caps.

A couple could potentially contribute a combined $1,040,000 (or $1,050,000 if aged 49 years or over on 30 June 2015) for the 2015/2016 year.

For the 2015/2016 year, an individual can potentially make $570,000 (or $575,000 if 50 years or over) in super contributions in one year, subject to the specific caps. A couple could contribute a combined $1,140,000 (or $1,150,000 if 50 years or over) in one year.

I also explain the two contributions caps elsewhere on the site. See the following SuperGuide articles for more information on the caps for the 2015/2016 year (and for earlier financial years):

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