Super contributions are one of the areas that individuals need to review now, even more so this year with the impact on super fund balances as a result of the economic downturn due to COVID-19.
The recent turn of events may give rise to individuals needing to revisit their super strategies and contributions, perhaps to tax effectively regain some lost ground.
Concessional contributions are before-tax contributions made into your super fund. They include employer contributions, salary sacrifice payments and personal contributions you claim as a tax deduction. The concessional contributions cap is $25,000 for all ages for the 2019-20 financial year.
Your employer can make super guarantee employer contributions for you at any time but If you are over age 65 you must also meet a work test prior to making any other form of concessional contributions. The work test requires that you have worked at least 40 hours in 30 consecutive days prior to making the contribution.
From 1 July 2018 individuals with a total superannuation balance of less than $500,000 on 30 June of the previous financial year may be entitled to carry forward unused contributions and contribute more than the general concessional contributions cap and make additional concessional contributions for any unused amounts.
Also, from 1 July 2019 eligible recently retired individuals aged between 65 and 74 and who have a total superannuation balance below $300K at 30 June 2019 are able to make voluntary super contributions in the first year that they no longer meet the work test requirements.
Concessional contributions are taxed at 15 per cent. Individuals may also pay Division 293 tax which is an additional 15% tax on concessional contributions for individuals whose combined income and contributions are greater than $250,000.
Non-concessional contributions are paid into super funds from after-tax income. They include contributions made by individuals or their spouse to a super fund where contributions are not claimed as an income tax deduction. The annual non-concessional contribution cap for the 2019-20 financial year is $100,000.
Eligible individuals may make bring-forward contributions, allowing them to also bring the next two years of annual non-concessional contributions cap forward into the current financial year without breaching the contributions cap.
Eligibility is dependent on your total super balance on 30 June of the previous year. If your total super balance was $1.6m or more as at 30 June 2019, you are unable to make a non-concessional contribution for the 2019/20 financial year. Also, if you had a balance over $1.4m use of the bring-forward rules is restricted.
Non-concessional contributions are not taxed unless the caps are exceeded.
Please contact us if you would like more information.