Personal Finance

Superannuation Contribution Caps are Rising

By March 19, 2014 No Comments

After a five- year pause, annual caps on contributions to super will rise in July. Adjusting for inflation they had effectively fallen to just $22,000 (in 2009 dollars).

Concessional contributions are before tax contributions made by your employer as part of the superannuation guarantee, which is currently 9.25% of your earnings. Any salary sacrifice arrangements are also considered concessional contributions, as are personal deductible contributions made by the self-employed.

New Concessional Contribution Caps

Age 2013-2014 2014-2015
To age 49 $25,000 $30,000
Aged 50-59 $25,000 $35,000
Aged 60+ $35,000 $35,000

The caps for non-concessional contributions (those made with dollars you’ve already paid tax on) are also rising. The annual cap is increasing by $30,000 from $150,000 to $180,000 from July 1.

The principal reason for putting after-tax dollars into super is that those funds will grow faster in a low-tax environment (assuming your marginal tax rate is more than 15%).

Under the “bring-forward rule”, you can make up to three years worth of contributions in one hit, but you are not allowed to make any further non-concessional contributions for a period of three years from that date. Under this arrangement the total contribution you can make is increasing from $450,000 to $540,000.

However, you should pay special attention to how the increasing caps interact with the “bring-forward” rule. If you trigger the bring-forward rule in this financial year, you will not be eligible for the increased caps allocated to years 2 and 3. On the other hand, if you limit your contribution this financial year to the annual cap of $150K, wait 4 months and then activate the bring-forward rule and use your full quota, you’ll be able to get $60,000 more into super than you otherwise would have.

As always, be very careful not to exceed the applicable contribution limits – excess concessional contributions are taxed at your marginal rate, and excess non-concessional contributions are taxed at 46.5%.

References

http://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page=2

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