Asset Super

Know the Limits

Like with a lot of things in life there are limits controlling superannuation especially around how much you can contribute and when.

Firstly let’s clarify some contribution terms:

Non concessional contributions – Non-concessional contributions are personal contributions and must be from after-tax income. Non-concessional contributions are added to your account balance, and form part of your overall benefit. Non-concessional contributions do not attract any tax on entry or exit from superannuation.  Before 1 July 2007, these were called ‘undeducted contributions’.

Concessional contributions – These are contributions to super from pre-tax income (i.e. all employer contributions including salary sacrifice and personal deductible contributions). Concessional contributions attract a 15% contributions tax on entry to the fund. These contributions are also added to your account balance and form part of your overall superannuation benefit. Prior to 1 July 2007, contributions of this type were known as ‘deductible contributions’.

Now let’s look at the limits

There is a limit or cap on the amount of non-concessional contributions that you can make without triggering a tax plenty.  That limit is currently $150,000 per year.

If you’re under 65 you are allowed to combine up to 3 year’s worth of contributions effectively allowing you to contribute up to $450,000 in one go covering a three year period.  This is known as the ‘bring forward’ rule.

Let’s take a look at how this can work.

Ted is 60.  He recently sold an investment property and decides to contribute the proceeds into super.   He contributes $250,000 in 2009/10 as a non-concessional contribution.  That triggers the ‘bring forward’ rule, so in 2010/11 and  2011/12 he can only make a total of $200,000 in additional non-concessional contributions before he reaches his cap. If he makes no contributions in those next two years, he can’t carry the $200,000 forward.  Instead his annual cap will revert to the standard $150,000 plus indexation.

There are limits on Salary Sacrifice too!

Salary Sacrifice and your superannuation guarantee contributions are known as concessional contributions, and there is a limit, or cap, on the amount you can make without triggering a tax penalty. That limit is currently $25,000 a year (2009/10 and indexed for future years) or $50,000 a year if you’re aged 50 or over (for the 2009/10, 2010/11 and 2011/12 financial years).

Limited Opportunity - The higher limit for people over 50 only lasts until 30 June 2012. After that the cap will be the same for everyone, so if you’re over 50 now or will turn 50 in the next few years’ make sure you take full advantage of the higher salary sacrifice limit opportunity while you can.