For most working Australians, superannuation contributions come in the form of regular employer contributions that are required by the law. They are much more complex than just employer contributions. These extend to individual members of super funds and if understood correctly super contributions can lead to a great amount of tax benefits as well as increase the amount of your fund. Super is a specialised area and it is important that advice is sought from a savvy SMSF accountant.
There are two types of superannuation contributions: concessional and non-concessional.
The complexities of superannuation contributions lie in whether the contribution is concessional or non-concessional. This distinction is responsible for the majority of tax benefits fund members seek.
Concessional contributions
Concessional contributions (or before tax contributions) are contributions where the members are able to claim an income tax deduction. The most common form of Concessional contributions include:
• The compulsory employer contributions made to an employee
• Any additional salary sacrifice from the employee
• Any contributions where a tax deduction can be claimed (if you are self-employed)
All concessional contributions (once in the fund) are taxed at a rate of 15%.
To obtain the full benefits of lower taxes and tax deductions of concessional contributions, it is imperative to fully understand the maximum concessional contribution that can be made as well as the potential penalties that apply.
• For individuals below the age of 50 the concessional cap is $30,000 per year
• For individuals above the age of 50 the concessional cap is $35,000 per year
Any thing that exceed the concessional cap are taxed at a rate of 46.5%. Any additional concessional contributions over the cap along with an interest charge are included in your individual income assessment and may potentially push you into a higher tax bracket.
The benefits associated with contributions have the potential to save you a large amount of money through its tax benefits while simultaneously increasing your superNon-concessional contributions
Non-concessional contributions (or after-tax contributions) are contributions that members cannot claim as a tax deduction. The most common forms of non-concessional contributions include:
Just like concessional contributions, non-concessional contributions have a cap of their own and similar penalties apply if these caps are exceeded.
• The non-concessional contribution cap is $180,000 per year for all individuals regardless of age.
Similar to the consequences of exceeding concessional contributions, any additional non-concessional contribution over the cap are taxed at a rate of 46.5%.
Some important points to consider before making any types of contributions to your super:
• Timing
◦ Along with what type of contribution is being made, the individual has to be well aware of the timing of the contributions. In regards to tax purposes what matters is when the fund receives the contributions not when they are made. For example, If an individual makes a $10000 concessional contribution on the 29th of June 2015 but the fund only receives the contribution on the 1st of July 2015. Then the contribution is said to be made in the next year, leaving the individual with a maximum of $20000 concessional contributions in the financial year of 01/07/2015- 30/06/2016.
• Penalties
◦ Regardless of whether a concessional or non-concessional contribution is made, exceeding either the concessional or non-concessional caps by $X will result in $X being added to your personal taxable income, which could potentially push you to a higher tax bracket requiring you to pay more taxes.
• Multiple super funds
◦ An important point to consider is that the caps for concessional contributions and non-concessional contributions is still the same even if you have multiple super funds.
There are many restrictions, penalties and benefits associated with contributions to your super fund. Our North Ryde accountants can provide all of the advice that is required before you make any of these contributions.