When you know the superannuation contribution limits – and the different ways to add money to your super – you can boost your annual tax refund and save painlessly for your retirement.
A healthy Superannuation fund is an important part of planning for your retirement.
Putting extra money into your superannuation is a great investment in your future. Once it becomes a habit, it is a pretty painless for most people. However, if you do it wrong, you could face costly penalties that erase the tax advantage of your super contributions.
Check the superannuation contribution limits to ensure you contribute correctly because if you go over the limits, it can be costly and waste your savings.
Salary Sacrifice to Your Superannuation Fund
An easy way to contribute is through salary sacrifice. This is extra money your request to go directly from your employer into your super fund. That money is subtracted from your taxable income, reducing the tax you pay each year. There is a limit on the amount of additional money you can put into your superannuation fund each year.
- Changes came into effect in 2017-18 where now no matter your age you can contribute up to $25,000 to your superannuation. (Previously, over 50’s could contribute an additional $5,000. This rule is scrapped in 2017-18.)
- Anyone who earns less than $37,000 per year qualifies for the Low Income Super Contribution scheme in which the Australian Government will contribute $500 into your account. Interested in the ATO Superannuation co-contribution scheme? Read about that here.
How you contribute to your superannuation fund plays a part in determining the differences in tax benefits. You can choose to contribute before you receive your pay (salary sacrifice) but there is a limit on the amount. This is called the ‘concessional contributions cap.’
- Concessional contributions are taxed at the rate of 15%
- If you do pay over the limit it’s important to understand that you’ll be taxed at your marginal tax rate, plus pay an excess concessional contributions charge. 31.5%
Carry-forward concessional contributions – New from 01 July 2018
After 01 July 2018, you can carry forward any unused concessional contributions cap space which increases your cap space the following year as long as your superannuation balance is less than $500,000. For example, in 2018-19 your superannuation balance is $400,000 and you salary sacrifice $10,000 of your income into your superannuation fund. That means of the $25,000 yearly cap you have $15,000 left which can be carried forward to 2019-20 giving you a cap of $25,000 + $15,000 = $40,000 for the 2019-20 tax year. Any unused cap amounts can be carried forward for a maximum of five years.
Non-Concessional Super Contributions (after-tax contributions)
An alternative to salary sacrifice is non-concessional contributions. In general there contributions are paid into your super from your own personal pay, after tax.
- These non-concessional contributions are subject to a yearly cap of $100,000.
- Be careful: If you pay over the limit, an extra tax of 47% is levied on the excess contributions left in the super fund.
If you can financially afford to do so, contribute to your superannuation on a regular basis as it can have a positive long term impact. Still unsure? Talk to one of our accountants about the tax benefits of contributing.