Understanding Superannuation Contribution Caps

Superannuation is an effective way to save for retirement but the amount of contributions you can make to super in each year is limited. Any superannuation contributions made in excess of the concessional and non-concessional caps may have penalty tax applied.  So take care with how much you contribute each year.

WHAT IS THE CONCESSIONAL CONTRIBUTIONS CAP?

Concessional contributions (CCs) generally include contributions your employer makes for you and contributions you make yourself for which you claim a personal tax deduction.

The concessional contributions cap for the 2022/23 financial year is $27,500. You may be able to utilise unused portions of previous years’ concessional contributions caps (starting in 2018/19) if your total superannuation balance was less than $500,000 on June 30, 2022.

WHAT IS THE NON-CONCESSIONAL CONTRIBUTIONS CAP?

Non-concessional contributions (NCCs) generally include your own contributions into super for which you don't claim a personal tax deduction as well as contributions made by your spouse. But if not managed carefully, excess concessional contributions can also count towards this cap.

The non-concessional contributions cap is $110,000 for the 2022/23 financial year. In addition, contributions can only be made if the balance of your superannuation savings are less than $1.7 million on June 30, 2022.

Some contributions you make will not count for the non-concessional contributions cap. This includes contributions arising from personal injury payments and up to $1.615 million (2022/23) contributed under small business CGT concessions. Both of these opportunities can help you increase how much you can get into super.

BRING FORWARD TWO YEARS OF NON-CONCESSIONAL CONTRIBUTIONS

If you want to boost your super and were under age 75 on July 1, 2022 you may be able to 'bring forward' up to two years of non-concessional contributions and add this to the cap for the current year to contribute a higher amount but it caps how much you can contributed across the full three year period. How much you can bring forward will also depend on how much you already have in super.

Example

Harold is age 70 and has inherited money from his mother’s estate. He has existing super savings of $400,000. He decides to contribute $330,000 into superannuation on October 1, 2022. This is done by bringing forward the NCC caps for 2023/24 and 2024/25 into the current year. He will not be able to contribute further NCCs before July 1, 2025.

The 'bring forward' option is triggered as soon as you make non-concessional contributions in excess of the annual cap.

TAX ON EXCESS CONTRIBUTIONS

If you exceed either of the contribution caps, tax penalties may apply and you may need to withdraw some amounts. How this works will depend on which cap is breached.

Excess concessional contributions

If you exceed your concessional contribution cap your tax return for that year is amended and the excess contributions are taxed at your marginal tax rate, less 15% for the tax already deducted in the fund.

You are personally liable to pay this tax amount but you can elect to withdraw 85% of the excess contributions from your superannuation account. If the excess is not withdrawn, this amount also counts towards your non-concessional contribution cap.

Excess non-concessional contributions

The tax rate on excess non-concessional contributions is 47% (including Medicare levy).

You can avoid this tax by withdrawing the excess non-concessional contributions plus associated earnings (as calculated by the ATO). The earnings will however be taxed at your marginal tax rate.

We can assist further with an explanation of the caps and how to effectively manage your contributions.