Wearing two contributions caps

Q: Are the caps relating to ‘concessional’ and ‘non-concessional’ contributions regarded as separate? Put simply, can I contribute $50,000 concessional and $450,000 non-concessional sums (a total contribution of $500,000) to my super fund for the 2010/2011 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.

‘Yes’ can also be the answer to the second part of the question (can I contribute $50,000 concessional and $450,000 non-concessional), assuming you are aged 50 or over. I explain the two contributions caps elsewhere on the site (Super concessional contributions: 2010/2011 survival guide and Your 2010/2011 guide to non-concessional (after-tax) contributions), but briefly, assuming an individual is aged 50 or over, he can make up to $50,000 in concessional (before-tax) contributions each year until June 2012. (Based on policy changes announced by the Labor Government, the $50,000 cap for over-50s is expected to extend beyond July 2012, subject to certain conditions.)

Note: Any contributions in excess of this concessional (before-tax) cap are subject to excess contributions tax, and these excess contributions then count towards an individual’s non-concessional (after-tax) cap.

If an individual is under the age of 50, then the concessional contributions cap is $25,000 for the 2010/2011 year. The $25,000 cap will be indexed in $5,000 increments in line with increases in Average Weekly Ordinary Times Earnings. The $50,000 transitional cap for over-50s is not indexed (although this is likely to change if the higher cap for over-50s becomes permanent – refer earlier).

The non-concessional contributions cap is $150,000 (for 2010/2011 year) and up to $450,000 when taking advantage of the ‘bring-forward’ rule. The non-concessional (after-tax) bring-forward rule applies to individuals under the age of 65: if an individual is 65 or over, he or she can only make after-tax contributions of up to $150,000 each year rather than $450,000 over a three-year period (which is available to those under the age of 65).

The rules outlined above mean that an individual aged 50 or over can make a total of $200,000 in super contributions in a year and remain within the contributions caps. 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 $450,000 in one year (for the 2010/2011 year), representing your non-concessional contributions cap over a three-year period.

If you’re aged 50 or over, you can potentially make $500,000 in super contributions (for the 2010/2011 year) in one year and stay within your contributions caps. A couple, aged 50 or over, could potentially contribute a combined $1 million in one year (for the 2010/2011 year).

Related articles:

1. Contributions caps relate to financial years, not calendar years
2. Watch the (contributions) caps when super sailing
3. Turning 65: Maxing out the after-tax contributions cap
4. 65 and over: making super contributions
5. Super contributions: Turning 65 part-way through the year