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Fact Sheet: Super Contribution Limits

2013-01-03

It is getting increasingly difficult to know how much to contribute to superannuation.

Sure, we all know that we need super to live off when we retire, but many of us are leaving it later to take an interest and start to build up our balance, and the limits on what we can contribute in any one year are being constantly reduced , meaning we can no longer contribute what we need to retire on over a short time period. We need to be thinking about our retirement now!

With all the different limits in the last few years  depending on your age and your superannuation balance, and the reduction of contributions limits generally since 2009, you would be forgiven for being a little bit confused. And if you do happen to get it wrong, the government can take up to 93% of the amount over the limit  back in tax. It's no wonder that people are being turned off self managed  super as an investment vehicle in favour of something easier to understand. As an example, net inflows into SMSF's have reduced from $21,012 in 2008-9 to $16,870 in 2010-11. This is a 20% reduction over 3 years.

We still believe that self managed superannuation is still a good place to keep your money. And the government has backed us up a little in the latest round of updates by not fiddling with things too much. Hopefully this article can help to provide some clarity around what you can contribute and when.

There have been a few wins lately for superannuation contributions:

  • Low Income Super Contribution: Individuals earning less than $37,000 will have the tax on their super contributions refunded up to the value of $500 (conditions apply)
  • From 1 July 2013, Super Guarantee  will be payable for all employees earning over $450 in a calendar month, regardless of age. This is currently  only required for employees up to the age of 70
  • Even though the co-contributions scheme has been slashed from $1.50 to 50c since 2009, it is still a viable way to get the government to add to your super account. This perk is limited to individuals who contribute after tax to their fund, which is then matched at a rate of 50% by the government, to a maximum of $500. The maximum income to access the full co-contribution is currently $31,921, although a reducing formula applies for people earning up to $46,921. (Other conditions apply)
  • And don't forget, superannuation earnings are taxed at 15%, and if the assets in the fund are supporting a pension, the fund could potentially pay 0% tax! Compare that with investing outside of super at your marginal tax rates, or at best, corporate tax rates of 30%. This is good news for all the DINKS or SINKS who don't have a low-income earning spouse to shelter their income producing assets with.

What are the limits?

1 - Concessional contributions (those which attract a tax deduction outside superannuation) are limited to $25,000 for the 2013 year, regardless of age. Broadly, a concessional contributions can be made by an employer or an entity that the member controls. Individuals need to satisfy more complex rules including that more than 90% of their income comes from running a business (subject to certain paperwork conditions being met), and that the amount of the  contribution cannot be greater than taxable income.  Concessional contributions are taxed at 15% in the fund (and 30% if the individual making the contribution has income over $300,000 from 1 July 2012).

2 - Non-concessional contributions (after tax contributions) are limited to $150,000 for the 2013 year. However, members under the age of 65 at the start of the income year may bring forward up to 3 years at once and contribute $450,000. A non-concessional contribution is anything that is not a concessional contribution. Non-concessional contributions are not taxed in the fund, and are added to the tax free part of the members balance.

These limits are separate, and either or both limits may be breached in any year, which could have significant taxation consequences for the fund. Importantly, if the concessional limit is breached, any excess also increases the non-concessional contributions in that year, meaning potentially both caps could be breached due to an employer contributing too much in an income year.

Note: All contributions are governed by other rules that affect whether a contribution is a concessional or non concessional contribution, and even whether  you can contribute.  Some of the rules are listed here:

Age-based limits:

  • Members over the age of 65 must meet the work test, which involves being employed for more than 40 hours in any 30 day period during the year the contribution is made
  • Members over 75 may only have mandated employer contributions go into their fund

Other limits:

  • Contributions made in one transaction that exceed the bring forward non-concessional cap must be returned
  • Tax file number must be quoted to the fund
  • Assets  may be contributed directly to the fund, however restrictions apply to these contributions. The only assets allowed to be transferred are: business real property, listed securities, or certain in house assets.

How can I reduce the risk of exceeding the caps?

Make sure you keep up to date with all contributions going into all funds. Keep a spreadsheet if you need which tracks the date the contribution was made, the amount, and whether it is a concessional or non-concessional contribution.

Ensure that when you count up your contributions, you include the following often missed items:

  • expenses you have paid on behalf of your fund (accountancy, audit, life insurance, etc)
  • any life insurance premiums in a stand-alone super scheme
  • employer and member contributions
  • assets you have transferred to your fund or purchased on behalf of your fund

What if I get it wrong?

As you can see, getting it wrong is easy, which is why the ATO expects to issue over 29,000 ECT assessments in the 2012-13 year, and a further 30,000 refund offers.

The ATO has discretion to disregard or reallocate contributions to another year, however we are seeing the commissioner unwilling to use this discretion, and cases going to the Administrative Appeals Tribunal. Recent case law suggests that the only reason to allow the commissioners discretion is in circumstances that were beyond the member's control, such as an employer contributing amounts relating to previous or future  years .

So if a mistake has been made, and I inadvertently caused it or had reason to believe that it could be caused, what are my options?

Up until recently,  the only option was to pay the tax. The tax rate is 45% on non-concessional contributions, and 30% on concessional contributions (bearing in mind the fund has already paid 15% contributions tax). So this rate is the same enjoyed by those on the top marginal tax rate. This tax can then be paid by the fund provided a notice to the fund is provided.

From 1 July 2012, however, another option is available. The ATO may offer that you refund the excess concessional contributions up to $10,000, and have them taxed at your marginal tax rate (with an offset for the 15% contributions tax already paid by the fund). This might be a good option if:

  • Your marginal tax rate is less than 45%
  • You have made non-concessional contributions and these concessional contributions will tip you over this cap as well

However, this option is only available where certain conditions are met:

  • The total of the amount over the concessional contributions cap is less than $10,000
  • You haven't breached your concessional cap since the 2011-12 financial year,
  • You have lodged your income tax return within 12 months of the end of the financial year in question.
  • This offer cannot be accepted in part. You either accept the refund of all excess contributions, or the fund is assessed for ECT at 30% tax.

You should consult a qualified accountant or financial adviser when  considering whether to accept or decline the offer, as your amended income may have significant consequences including family tax benefit, child care benefit, child support assessments, and eligibility for other offsets or co-contributions.

Should you need further advice, contact The Accountant Group or  The Wealth Creation Group on 1300 TAX 000 and speak with  one of our experts today.

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