There is such a thing as too much of a good thing. Overdo it with your contributions and you might find yourself with unwanted tax bills. Let’s take a closer look at the caps, so you can contribute, get generous tax breaks and prevent penalty tax.
Concessional contribution cap
The concessional (before-tax) contribution cap is $25,000 a year. Employer contributions, including salary sacrifice and any personal contributions you claim as a tax deduction, are all included in the cap.
It’s possible in some years you may have more spare cash to invest than other years. If you find you can contribute more than in a previous financial year, you can use what's called the ‘carry-forward’ rule. Starting 1 July 2018, as long as your total super balance is less than $500,000 (see below), the carry-forward rule lets you add the previous year’s cap limit to your current cap, up to a rolling five-year period.
Non-concessional contribution cap
The cap for non-concessional (after-tax) contributions is $100,000 a year. These are contributions that are paid into your super fund from your bank account, including:
- Personal contributions you haven’t claimed a tax deduction for
- Spouse contributions
- Non-concessional contributions that have exceeded their cap
Naturally, you won’t always know when you’ll have money to contribute, so non-concessional contributions also have the ‘bring-forward’ rule. In this case the rule applies for three years with a contribution limit of up to $300,000. It’s quite a boost, but note there are rules around your age, work situation and total super balance that you need to consider.
Total super balance
Your total super balance provides a way to put a value on your combined super interests on 30 June of each financial year. Your total super balance may restrict you from making certain types of contributions:
- Unused concessional contributions cap to carry-forward
- Non-concessional contributions and the bring-forward rule
- Government co-contribution (this relates to the non-concessional contribution cap listed above)
- Tax offsets for spouse contributions (this relates to the non-concessional cap listed above)
Transfer balance cap
The transfer balance cap limits how much you can transfer from your super into retirement accounts.
The transfer balance cap is currently set at $1.6 million, and may increase annually in $100,000 increments (in line with CPI).
If you exceed the cap, you may be required to pay a fine and transfer the excess money out of your retirement accounts.
If you need help to set up your accounts so you don’t exceed the transfer balance cap, we can help.