The short story on super contribution limits

You can make two types of superannuation contributions and each type of contribution has a separate limit.

Concessional contributions: Before-tax contributions, such as salary sacrificed contributions and personal tax-deductible contributions, are known as concessional contributions. The limits for this type of contribution are set out in the table below.

*Transitional provisions in place (until June 30, 2012) for anyone aged 50 or over on or after July 1, 2007. The existing law states that from July 1, 2012, the contributions cap for all age groups is $25,000 plus any $5000 increments to the $25,000 limit due to indexation since July 1, 2009. Note that the Government has announced that the $50,000 (indexed) limit will remain in place for Australians who have less than $500,000 in their super account (yet to legislated and not much detail available on this measure at the time of writing).

**Unless required under an industrial award or agreement.

Non-concessional contributions: The other type of contribution is when you make a contribution from after-tax dollars, which is officially called a non-concessional contribution. The annual non-concessional contributions cap is $150,000 (for 2010/11 year) although it is possible to boost your non-concessional contributions for a particular year by taking advantage of the ‘bring forward’ rules.

If you’re under 65, you can contribute more than $150,000 in non-concessional (after-tax) contributions without getting hit with penalty excess contributions tax. You can do this by bringing forward up to two years’ worth of contributions (see Examples 1 and 2 in table below), which is called a ‘bring-forward’.

The annual non-concessional contributions cap applies to each person, which means a couple can make non-concessional contributions of up to $300,000 (for the 2010/11 year, or, by using the bring-forward rules, a couple can make up to $900,000 (for the 2010/11 year) in after-tax contributions in one year, every three years.

A couple has the potential to make $900,000 in non-concessional (after-tax) contributions in 2010/11, and $50,000 each in concessional contributions (if aged 50 years or over), which means a couple could potentially make $1 million in super contributions in a year (for the 2010/11 year).

What many fund members don’t realise, however, is that when you contribute more than $150,000 (for the 2010/2011 year) in non-concessional contributions in one year, you automatically trigger the ‘bring forward’ rules for the following two years. For example, if you make a $200,000 after-tax contribution in Year 1, and you then make a $100,000 contribution in Year 2, which is a total of $300,000 — two years of limits — you can’t then start the process again in Year 3, with say, a $450,000 contribution. Your contributions for Year 3 are linked with what you contributed in previous years (see Example 3 in table). You can then only restart the process in year 4 (see Example 4).

It is confusing when expressed in words, so take your time working through the table below. Expressing the rule in another way: if you make a $300,000 after-tax contribution during the 2010/11 year on, say, June 20, 2011, that brings forward one year of contributions, but it means you have triggered the bring-forward rules for the next two years (see Example 5 in table). The maximum amount of non-concessional contributions that you can then make over the next two years is $150,000 in total, taking your contributions to the $450,000 maximum over the three-year period.

Note: Concessional (before-tax) contributions in excess of the age-based limit will also count towards your non-concessional limit. The Government co-contribution does not count toward your non-concessional (after-tax) contribution limit.

* You can stretch the $150 000 annual limit over three years; for example, by making a $450,000 contribution in one year, representing your entitlement for the next three years. The ‘bring forward’ option is only available for those under the age of 65.

Related articles:

1. Jump in contribution limits for 2009/2010 year
2. Know your super limits: Reducing CGT via concessional contributions
3. 65 and over: making super contributions
4. Turning 65: Maxing out the after-tax contributions cap
5. Contributions caps relate to financial years, not calendar years