Know your limits
Making additional contributions to your super is a great way to boost your retirement savings, but there are some limits to how much extra you can put in. If you go above these limits, you may pay extra tax, so it’s worth understanding how the cap structure works.
And we’ll be honest here – some of this information is a little complex, so feel free to get in touch with us and we can talk it through with you.
The cap on concessional contributions
Concessional contributions are the ones you make before your income tax is taken out. They include the super from your employer, your salary sacrificed contributions, and any other contributions where you’ve claimed a tax deduction. They’re taxed at 15% when they enter your super fund, unless your income is over $250,000 (including concessional contributions), in which case some or all are taxed at 30%.
A few working examples
The maximum amount of concessional contributions you can put into your account each year is $25,0001.
Additionally all Australians up to age 65 may be able to claim a tax deduction for personal contributions made, regardless of their work circumstances, up to the concessional contributions cap.
From 1 July 2018, you can carry forward concessional contributions over a 5-year period if your total superannuation balance at the end of the previous financial year is less than $500,000. From 1 July 2019 you will be able to access your unused concessional contributions.
What happens if you exceed the cap?
Any contributions you make over the cap will be taxed at your marginal tax rate. You may also be taxed for making excess contributions and incur other interest charges (with an entitlement to a 15 per cent tax offset). If you exceed the cap, you can withdraw up to 85 per cent of your excess contributions (for a financial year) from your super. Any excess contributions that you leave in your super will count towards your non-concessional contributions cap. However, your non-concessional contributions cap will exclude any concessional contributions you withdraw from your super.
The cap on non-concessional contributions
Non-concessional contributions are the ones you make after your income tax is taken out. They include after-tax contributions and spouse contributions, and they’re capped at $100,000 for the 2018/2019 financial year. If your total superannuation balance is $1.6 million or greater at 30 June of the previous financial year, your non-concessional cap is nill.
These contributions are not taxed when they enter your super fund (you’ve already paid tax on the money). But any contributions that you make above the $100,000 cap will be taxed at 45%2 in the 2018/2019 financial year.
If you exceed your non-concessional contributions you can choose to withdraw the excess contributions from your super. If you choose to withdraw the excess, you’ll also need to withdraw 85 per cent of any returns from your account. The returns will be included in your assessable income and taxed at your marginal tax rate4 (with an entitlement to a 15 per cent tax offset). While you’re taxed on your returns, you’re not taxed on the non-concessional contributions you withdraw. Any excess contributions you leave in the fund will be taxed at the highest marginal tax rate.
If you’re under 65, you can combine three years in one
If you’re aged under 65 for at least part of the financial year in which you make a non-concessional contribution, then you can bring forward two years’ of non-concessional contributions. It means you can contribute three times the non-concessional cap at one time. The trade-off is you won’t be able to make any more non-concessional contributions for the next three years (without incurring excess contributions tax).
The amount you can bring forward also depends on your total superannuation balance. If you have less than $1.4 million, then you can bring forward three years ($300,000). If your total superannuation balance is between $1.4 million and $1.5 million, then you can bring forward two years ($200,000). You cannot bring forward if you have a $1.5m or more total superannuation balance, and the non-concessional cap applies.
This information is for general purposes only and does not take into account your personal objectives, financial situation, or needs and you should seek professional advice before making a decision.
Yes, there are some exclusions to the contribution caps, including co-contributions. You can find out more by reading the Personal Contributions Guide. Or you can get in touch with us.
Yes, they’re indexed each financial year. There’s more information about how they’re indexed in the Personal Contributions Guide.
No, so it’s important to keep a track of everything yourself – including the contributions you may be making to other super funds. That said, if you get in touch with us, we’ll be more than happy to update you on what contributions you’ve made with QSuper for the financial year to date (another good reason to consolidate all of your super to help you keep track).
There are a few different things for you to consider, such as:
By setting your salary for superannuation purposes, the amount your employer contributes to your super will be reduced. While every employer is different, in most cases your salary will remain the same, and so the amount that was being contributed to your super may be paid directly to you, possibly increasing your pay. Just keep in mind that this may have implications for other benefits you’re entitled to.
You'll need to meet certain criteria in order to be eligible to reduce your salary for superannuation purposes. And you’ll only be eligible to enter into an agreement if the current rate at which employer contributions are being made is the lowest available to you.
An agreement is valid for one financial year, and both you and your employer need to agree to the reduction in salary for superannuation purposes.
The salary for superannuation purposes that you agree on must be an amount that would result in a level of employer contributions equal to the concessional contributions cap. Any member contributions that are before-tax (salary sacrificed) would be subject to excess concessional contributions tax. The agreement must be submitted within four months after the beginning of the financial year for which the agreement applies.
For insurance purposes you should know that your insured salary is defined as your salary for which employer contributions are paid to QSuper. So if you reduce your salary for concessional cap purposes your income protection cover may be affected.
If you'd like to reduce your salary for superannuation purposes, just fill in the Salary for Superannuation Purposes Agreement form and return it to us. Before entering into an agreement, you should consider getting financial advice to understand your options.
You can find more information on the Australian Taxation Office (ATO) website. Or have a read through our Personal Contributions Guide.
When you lodge your tax return, the ATO will send you a Notice of Assessment with details about any tax you’ll need to pay. If you’re required to pay excess contributions tax, you’ll have 21 days from the issue date of your Notice of Assessment to pay the tax. After that, interest and further penalties are charged.
Paying excess concessional contributions tax
If the tax is on excess concessional contributions, you can choose to pay this with your own money or with money from your super fund. If you choose to pay it with money from your super fund, you can authorise your super fund to release the amount to you or to pay the ATO directly.
You can't use a release authority from the ATO to release an amount from a Defined Benefit account. If you don't have any money in an Accumulation account and all of your money is in a Defined Benefit account, you must pay the excess concessional contributions tax from your own money.
Paying excess non-concessional contributions tax
If the tax is on excess non-concessional contributions, you must pay this tax from your superannuation. You can authorise your super fund to release the amount to you or to pay the ATO directly.
The ATO will send you a release authority form to authorise the withdrawal of money from your superannuation fund to pay the tax.
You can present release authorities to any of your superannuation funds, other than those that hold only a Defined Benefit account on your behalf, within 90 days of the issue date.
It's important to note that while you have 90 days to present your release authority to your superannuation fund, interest may be charged if you pay after the due date, which is 21 days from the date of your ATO Notice of Assessment.
After receiving the release authority, we’ll generally make a payment to the ATO or to you as nominated within seven working days.
You can't use a release authority from the ATO to release an amount from a Defined Benefit account. If you don't have any money in an Accumulation account and all of your money is in a Defined Benefit account, you’ll need to pay the excess non-concessional contributions tax from other sources.
Remember, the caps apply to your total contributions across all of your super funds, so it's important to keep a track of your contributions. If you contact us, we’ll be able to tell you what contributions you have made to your QSuper account within the financial year (another good reason to consolidate all of your super into QSuper).
If you contribute to a Defined Benefit account for only part of the year, you need to multiply your salary by the number of days you contributed to the Defined Benefit account, and then divide that by the total days in the year.
If you work part-time, you'll need to multiply your salary by your part-time ratio. Your employer will be able to tell you what your part-time ratio is. If you change the number of hours you work during the financial year, your employer may not be able to tell you your part-time ratio until the end of the financial year. Periods of leave without pay can't be included in your hours worked to determine your part-time ratio.
Tenille is 42, works three days a week (60% of the full-time rate) and her full-time equivalent salary is $54,000. She salary sacrifices her standard member contributions to her Defined Benefit account each fortnight. Tenille's Notional Taxed Contributions (NTC) amount at the end of the financial year is calculated below.
1.2 x [(12% x $54,000) x 60%] = $4,665.60
Tenille's NTC amount is $4,665.60, which includes her salary sacrifice standard member contributions. The NTC amount is below the $25,000 concessional contributions cap (2017/2018 financial year).
There’s a lot to take in, we know. So if you want some expert advice about your finances – from super and retirement planning, to wealth creation, salary packaging and personal life insurance – consider a session with a QInvest3 advisor.
We do our best to keep fees low. And if the advice you’re after is about your QSuper benefit, then we’ll contribute towards the cost. We’ll explain what the fee will be before getting started.
For more information, or to set up a meeting or phone call, contact QInvest.
1. If you’re a defined benefit account member, we use a formula to calculate the concessional contributions associated with your account, which are called notional taxed contributions. Special rules apply for members who had an existing defined benefit account at 12 May 2009.
2. Plus applicable levies.
3. QInvest Limited (ABN 35 063 511 580, AFSL and Australian Credit Licence number 238274) is ultimately owned by the QSuper Board (ABN 32 125 059 006) as trustee for the QSuper (ABN 60 905 115 063). It’s a separate legal entity, responsible for the financial services and credit services it provides. Advice fees apply.
4. For the relevant financial year.