Are there any super contribution limits?

Are there any super contribution limits?

If you’re considering making extra super contributions in order to boost your nest egg, it’s important to be mindful of any limitations and avoid being stung by hefty additional taxes.

It’s never too early to start planning for your retirement. In fact, the sooner you make positive changes to your superannuation, the greater chance you give yourself to retire comfortably.

While you may feel content with the knowledge that your employer is making compulsory contributions into your super fund account each quarter, even minor extra contributions can really add up over the years.

If you’re employed, earning at least $450 per month and are over the age of 18, you're eligible to receive super from your employer.

The minimum contribution amount that your employer is required to make, known as the super guarantee, is currently 9.5% of your gross salary. This is scheduled to progressively increase to 12% by July 2027.

In addition to your employer’s contribution, you may be entitled to make extra contributions yourself, in the form of one or both of the following:

  1. Pre-tax super contributions
  2. After-tax super contributions

Keep in mind, however, there are limits to how much you can contribute in both cases.

What are the super contribution limits?

Pre-tax super contributions

Pre-tax super contributions, also known as salary sacrifice, can be paid out of your pre-tax income by your employer, at your request.

These payments, along with your employer’s super guarantee, make up what is known as your concessional contributions.

Your concessional contributions have a limit of $25,000 in total per financial year, regardless of your age and super fund balance.

Concessional contributions are taxed at a rate of 15%, which in most cases will be lower than your marginal tax rate.

According to MoneySmart, making extra concessional contributions is generally tax effective if you earn more than $37,000 per annum.

If your concessional contributions total less than $25,000 in a financial year, you may have the opportunity to utilise the unused amount of the cap for up to five years, in the form of a carry-forward contribution.

For example, if your concessional contributions totalled $20,000 in 2018, you may be able to carry the remaining $5,000 forward so that your 2019 cap becomes $30,000. If you then only make pre-tax contributions totalling $25,000 in 2019, you can continue to carry that excess $5,000 forward for a total of up to five years.

Only those with a total super balance of less than $500,000 on 30 June of the financial year prior may be eligible.

After-tax super contributions

If you reach the concessional contribution cap, there’s also the option to make super contributions from your after-tax pay. These payments are known as non-concessional contributions, as you will have already paid tax on this money.

The amount of non-concessional contributions you can make each financial year is capped at $100,000, for those with super balances of less than $1.6 million. If your super balance is over $1.6 million, you are ineligible to make non-concessional contributions.

There may be carry-forward flexibility for non-concessional contributions as well, depending on your age and your super balance.

What happens if I have exceeded the super contribution caps?

If you fail to keep track of how much you have paid into your super account in the form of both concessional and non-concessional contributions each financial year, you run the risk of exceeding the limits.

And if you do find yourself in that position, you could face having the excess taxed by up to 94% in some cases.

The total amount of extra tax you may have to pay will typically depend on your age, which financial year your contributions relate to, and whether the contributions were concessional or non-concessional.

If the Australian Taxation Office (ATO) does find that you have exceeded the caps, you will be issued with a determination and offered two payment options for the tax owing:

  1. Use your savings
  2. Pay it with the funds from your super account

If you want to find out how much you have contributed to your super fund in order to prevent exceeding the limits, you can either contact your super fund directly or the ATO.

You can also view your remaining carry-forward cap balance using ATO online services via myGov.

Did you find this helpful? Why not share this article?

Advertisement

RateCity
ratecity-newsletter

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By submitting this form, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Advertisement

Learn more about superannuation

What are concessional contributions?

Concessional contributions are pre-tax payments into your superannuation account. The payments made by your employer are concessional payments. You can also make concessional contributions with a salary sacrifice.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

What contributions can SMSFs accept?

SMSFs can accept mandated employer contributions from an employer at any time (Funds need an electronic service address to receive the contributions).

However, SMSFs can’t accept contributions from members who don’t have tax file numbers.

Also, they generally can’t accept assets as contributions from members and they generally can’t accept non-mandated contributions for members who are 75 or older.

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What are government co-contributions?

A government co-contribution is a bonus payment from the federal government into your superannuation account – but it comes with conditions. First, the government will only make a co-contribution if you make a personal contribution. Second, the government will only contribute a maximum of $500. Third, the government will only make co-contributions for people on low and medium incomes. The Australian Taxation Office will calculation whether you’re entitled to a government co-contribution when you lodge your tax return. The size of any co-contribution depends on the size of your personal contribution and income.