From 1 July 2017 several changes to superannuation rules affecting contributions, caps and taxes will take effect.
The before-tax (concessional) contribution cap will be reduced to $25,000 regardless of age. The after-tax (non-concessional) contribution cap will be limited to $100,000 a year, with a bring forward rule of $300,000. If your super balance is over $1.6 million, any non-concessional contributions will be treated as excess non-concessional contributions, and additional tax may apply.
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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 Australian Government’s ‘caps’ 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 $300,000 (including concessional contributions), in which case some or all are taxed at 30%.
A few working examples
If you’re 48 or under, you can contribute up to $30,0001 in the 2016/2017 financial year this way. If you turned 49 on or before 30 June 2016, it’s $35,000.1
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 $180,000 for the 2016/2017 financial year.
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 $180,000 cap will be taxed at 49%2 in the 2016/2017 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).
This information is general in nature, so you shouldn’t rely on it as taxation advice, nor does it take the place of such advice. We recommend that you 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 into QSuper).
If you’re 65 or over and we receive a non-concessional contribution of over $180,000 in one deposit, we’ll automatically refund the amount over $180,000. And if you’re under 65 and we receive a non-concessional contribution over $540,000 in any one deposit, we’ll automatically refund the amount over $540,000.
There are a few different things for you to consider:
By setting your salary for superannuation purposes, the amount your Queensland government 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.
It’s worth noting that there will be an impact on the level of your income protection cover. Income protection cover is paid based on your salary for superannuation purposes. So if you reduce your salary for superannuation purposes, you’ll only be entitled to up to 75% of the lower salary amount as income protection.
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).
In Defined Benefit accounts, employer contributions aren't allocated to individual members but instead to a pool of funds from which benefits are paid. Because of this, a formula is used to work out the notional taxed contribution (NTC), which determines the total concessional contributions to be reported for your Defined Benefit account and counted towards your concessional contributions cap.
The formula takes into account your salary for superannuation purposes, non-concessional standard contributions, and an actuarially derived new entrant contribution rate (NECR).
1.2 x [(NECR x 1 July salary) - non-concessional standard contributions]
You can work out your NTC by using the formula and the NECR rate for your account type shown below. If you're a Defined Benefit account member, the formula is the same no matter what your rate of contribution.
Cooper has a Defined Benefit account. He works full-time and his 1 July salary is $125,000. He contributes $6,250 to his account, which is 5% of his after-tax salary. Cooper's NTC amount at the end of the financial year is calculated as follows:
1.2 x [(12% x $125,000) - $6,250] = $10,500
Cooper's NTC amount is $10,500 which means Cooper can make salary sacrifice voluntary contributions into an Accumulation account of up to $19,500 without exceeding the cap (2015/2016 financial year).
Special rules may apply if you were a Defined Benefit account member at 12 May 2009.
These arrangements only apply to concessional contributions made to a Defined Benefit account. It means if your NTC amount exceeds the cap you won't pay any excess contributions tax, because your NTC amount is deemed to be within the cap.
Remember, these special arrangements only apply to the NTC amount attributed to your Defined Benefit account, and not to concessional contributions to an Accumulation account, such as salary sacrifice voluntary contributions, or additional employer contributions paid to meet ordinary time earnings obligations.
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 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 $30,000 concessional contributions cap (2015/2016 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. This rate includes the 2% Medicare levy and 2% Temporary Budget Repair levy.
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 Fund (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.