The two most common types of superannuation contributions made by members to their superannuation fund are known as concessional and non-concessional contributions.
Concessional contributions are contributions made into a superfund and are included in the assessable income. These contributions are taxed at a ‘concessional’ rate of 15%, which is often referred to as ‘contributions tax’. These can include:
- Employer contributions, such as super guarantee and salary sacriﬁce contributions for which the employer claims an income tax deduction.
- personal contributions made by the member for which the member claims an income tax deduction.
Non-Concessional Contributions are generally contributions made by a member into a superfund and are not included in the superfunds assessable income. The most common type is personal contributions made by the member for which no income tax deduction is claimed. Taxpayers commonly contribute in this fashion when they received an inheritance, sale to downsize their own residence or sale of investment property. An individual may choose to do this as superannuation in a concessionally taxed environment and depending on the age and breakup of the fund, will pay either 15% or no tax on the earnings these funds generate.
The above contribution types are subject to capped amounts that are to be changed under the government’s current superannuation reforms.
For the 2015, 2016 and 2017 financial years, the concessional contributions cap limit is $30,000 per financial year and will be temporarily increased to $35,000 for members aged 49 or over.
From 1 July 2017, the general concessional contributions cap limit will reduce to $25,000 for all individuals regardless of age.
For the 2015, 2016 and 2017 financial years, non-concessional contributions are subject to a yearly cap of $180,000 however members under 65 may be able to contribute up to $540,000 over a three-year period depending on their previously used caps.
From 1 July 2017, the non-concessional contributions cap will reduce to $100,000 for members aged 65 or over but under 75. Members under 65 years of age will have the option of contributing up to $300,000 over a three-year period depending on their total superannuation balance.
There are transitional arrangements which will need to be considered for members who have already triggered their three year bring forward contribution cap. The table below sets this out in further detail:
Source: Treasury: Superannuation Fact Sheet 04 – Annual non-concessional contributions cap
In addition to the above cap limits, there are a number of other factors the member may also need to consider prior to contributing to their superannuation fund. This may include a review of the age limits, the work test and the deductibility of the contribution.
To find out more about the above changes and what superannuation contributions will work best for you, get in touch with BLG Business Advisers online or call (02) 4229 2211.