Australians At Higher Risk This Year Of Being Penalised For Exceeding Superannuation Contribution Limits
Changes to the superannuation rules in effect for the 2017/18 financial year are designed to further limit the amount of money Australians can contribute to the tax advantaged superannuation system.
This year’s lower maximum limits could be a trap for unwary Australians who continue to contribute to superannuation as they have in previous years.
Penalties for exceeding contribution caps can be as high as 47% plus an interest charge.
So, how much can you contribute this financial year? Here’s a brief summary:
Contributions which qualify for a tax deduction:
Concessional contributions (which include self-employed and/or personal deductible contributions, employer contributions and salary sacrifice contributions) are now limited to $25,000 per annum. Note that if you have been contributing above this level, consult your financial planner and review any contribution and transition to retirement strategies so you don’t exceed the limit for 2017/18.
Please note if you are aged 65 to 75, you must pass a work test to be eligible to contribute to super. People aged more than 75 are not eligible to make personal contributions.
Contributions which do not qualify for a tax deduction:
This financial year there are further restrictions on being able to make personal non-concessional contributions to super (i.e. contributions for which you do not receive a tax deduction).
Those people with more than $1.6 million in super are not allowed to make any more non-concessional contributions. For people with less than $1.6 million in super, you could invest up to $100,000 per annum.
If you are under age 65 and have less than $1.4 million in super, you can bring forward up to two years of non-concessional contributions meaning you could contribute $300,000 this financial year – as long as you have not triggered the ‘bring forward’ provision in the previous two financial years.
Note that if you have between $1.4 and $1.5 million in super you can bring forward one year of non-concessional contributions but if you have between $1.5 and $1.6 million you cannot bring forward any further contributions.
If you do use the ‘bring forward’ provision, you cannot make a non-concessional contribution for the number of years you have brought forward.
The Low Income Superannuation Tax Offset (LISTO):
The Government currently provides a contribution of up to $500, equal to 15% of concessional contributions made, up to $3,333, for workers with an adjusted taxable income of up to $37,000 p.a.
The Government co-contribution:
Currently, if you are working, have less than $1.6 million in super, and make a non-concessional contribution to super (without exceeding your non-concessional cap for the year), and earn up to $51,813 this year, you are eligible for a super co-contribution from the Government of up to $500.
If your partner’s income is $37,000 or less, they have less than $1.6 million in super, and haven’t exceeded their non-concessional cap for the year, you could qualify for a tax offset of up to $540 on the first $3,000 you contribute to superannuation for them from your after-tax income. This tax offset decreases as your partner’s income increases above this level and phases out when their income reaches $40,000.
NOTE: The government has also recently legislated some important budget measures regarding superannuation:
First Home Super Saver Scheme
As of 1 July 2017, individuals aged 18 and over can make voluntary contributions to their superannuation accounts (subject to limits and caps) that can be withdrawn to purchase their first home. A deeming rate will be used to determine the amount of earnings that can also be withdrawn. This measure may help boost saving for a first home deposit compared to standard bank accounts. Please see your adviser for further information.
Reducing Barriers to Downsizing
To help remove some of the barriers of older people downsizing their homes, from 1 July 2018, people aged 65 and over will be able to make a non-concessional contribution into super of up to $300,000 from the sale proceeds of their home, and existing barriers for older people making these contributions, such as the work test, no contributions after age 75 and the $1.6M balance test for non-concessional contributions will not apply to these contributions.
This will only apply to principal places of residence that have been held for at least 10 years, and both members of a couple can take advantage of this measure, allowing a total amount of $600,000 to be contributed per couple. We strongly recommend seeking financial advice if considering this, as there may be Centrelink implications for some people.