An understanding of the distinction between concessional (before-tax) and non-concessional (after-tax) super contributions, and the rules governing each.
Tips to maximise your super contributions whilst remaining within the cap limits, such as spouse contributions and salary sacrificing.
The government encourages us to contribute to our super by offering tax benefits. However, there are limits to how much you can contribute to your super each year without incurring additional taxes.
Knowing the super contribution caps is an important aspect of retirement planning, as understanding the rules can help you maximise your retirement savings.
What are super contribution caps?
Super contribution caps are annual limits set by the Australian government on the amount of money you can contribute to your super fund without incurring extra taxes. These caps are designed to ensure that super remains a tax-effective way to save for retirement while preventing high-income earners from abusing the system.
There are two main types of super contribution caps: concessional (before-tax) and non-concessional (after-tax) contributions. Let’s examine these two categories and the caps associated with them for the 2023-24 financial year.
Concessional (before-tax) super contribution caps
Concessional contributions are made with pre-tax income and include contributions made by your employer (Superannuation Guarantee contributions), salary sacrifice contributions, and personal contributions for which you claim a tax deduction.
For the financial year 2023-24, the concessional contribution cap is $27,500. This means you can contribute up to $27,500 to your super fund from your pre-tax income without incurring additional taxes. You may be eligible for a higher cap if your total superannuation balance last 30 June was less than $500,000 and you have not used all your concessional caps for the last five financial years. If you exceed this cap, the excess contributions will be taxed at your marginal tax rate (tax rate you pay on your income).
If you are aged 67 to 74 you must meet a work test in order to claim a deduction for personal contributions. Consult with us or the ATO (Australian Taxation Office) to understand your specific cap limits.
Non-concessional (after-tax) super contribution caps
Non-concessional contributions are made with after-tax income. They include personal contributions that are not claimed as a tax deduction and any contributions made by your spouse on your behalf.
For the financial year 2023-24, the annual non-concessional contribution cap is $110,000. This means you can contribute up to $110,000 of after-tax money to your super fund in a financial year. However, depending on your total superannuation balance last 30 June, you may be eligible to bring forward up to two financial years’ non-concessional contribution caps, effectively allowing you to contribute up to $330,000 in one go.
Keep in mind that if your total superannuation balance last 30 June exceeds a $1.9 million, you cannot make non-concessional contributions this financial year. Always check the ATO’s latest rules and consult with a financial adviser for the most up-to-date information.
The importance of staying within the super contribution caps
Exceeding the super contribution caps can have significant financial consequences. If you go over your concessional cap, the excess amount is taxed at your marginal tax rate. For non-concessional contributions, the excess amount is taxed at a higher rate unless it is released from super. Where it is released from super, associated earnings relating to the excess amount is taxable, so it is important to stay within the limits.
The government introduced these caps to prevent high-income earners from using super as a tax shelter, and it’s important to respect these limits to avoid penalties and maintain the tax advantages associated with super.
Strategies to maximise super contributions
While it’s essential to stay within the super contribution caps, there are several strategies you can employ to maximise your super contributions within the limits:
Salary sacrifice – Consider setting up a salary sacrifice arrangement with your employer to contribute a portion of your pre-tax income to your super. This can help you make the most of the concessional contribution cap while reducing your taxable income.
Spouse contributions – If your spouse has a lower super balance or is not working,you can make contributions on their behalf, and you may be eligible for a tax offset that financial year.
Government co-contributions – Low to middle-income earners may be eligible for government co-contributions by making personal non-concessional contributions. This can be an effective way to boost your super savings.
Utilise the bring-forward rule – If you’re eligible, consider using the bring-forward rule to make larger non-concessional contributions by using up to two future years’ non-concessional caps.
Seek professional advice – Consult with us or tax professional to create a super strategy tailored to your individual circumstances, ensuring you make the most of your contributions while staying within the caps.
Source: MLC November 2023
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.