Super Contributions - Too Much Super Can Mean Extra Tax
Planning and providing for your retirement is an important part of your overall financial strategy. But too much super can be a bad thing especially if you contribute more than the allowed by the annual contribution caps.
How much extra tax you pay once you exceed a cap depends on the type of contributions. There are two types of contributions:
-
concessional
-
non-concessional.
Concessional contributions
Concessional contributions are generally the before-tax contributions that you or your employer make to a super fund, for example:
-
compulsory super your employer contributes for you (9% - also known as the super guarantee)
-
any additional voluntary super contributions your employer makes
-
salary sacrificed amounts
-
any costs your employer pays such as super administration fees and insurance premiums on behalf of your fund
-
personal contributions you are allowed and claim as a personal super deduction in your income tax return.
Your concessional contributions cap depends on your age and the year in which the contributions are made.
TABLE: Concessional contributions caps
|
Financial year
|
Under 50 years old
|
50 years old or over
|
|
2011-12
|
$25,000
|
$50,000
|
Any concessional contributions made into your super fund over the concessional cap will also count towards your non-concessional contributions cap.
Non-concessional contributions
Non-concessional contributions are generally the after-tax contributions you make to a super fund - for example:
-
personal contributions you make from your after-tax income which you don't, or aren't allowed to claim a personal super deduction for in your income tax return
-
contributions your spouse makes to your super fund account
-
contributions in excess of your concessional contribution cap - that is, your excess concessional contributions.
The yearly non-concessional contributions cap is now six times the amount of the (indexed) concessional contributions cap in that year. This means that the non-concessional contributions cap in 2011-12 remains at $150,000.
If you are under 65 years old, you can 'bring forward' two years worth of non-concessional contributions. This means you can contribute up to three times the yearly non-concessional cap at once, or at any time during a three financial year period. The three-year period starts with the year that you first contribute more than the non-concessional contributions cap.
How much extra tax do I have to pay if I exceed a cap?
Contributions in excess of the respective caps are taxed at different rates. The amount of tax you pay on the excess amount depends on which cap you exceed.
TABLE: Tax rates for contributions caps
|
Cap
|
Tax rate
|
|
Concessional contributions cap
|
31.5% (in addition to the 15% paid by the super fund)
|
|
Non-concessional contributions cap
|
46.5%
|
Any concessional contributions made into your super fund over the concessional cap will also count towards your non-concessional contributions cap.
How can I remain under the caps?
You should regularly review your super contributions. If you are likely to exceed either of the caps and you don't want to pay extra tax, you should adjust the amounts that are contributed to your super fund.
The timing of your contributions can also be important. Contributions are counted against the caps in the year in which they are received by your super fund.
