As the last quarter of the year rolls around it is a time that many people consider topping up their super to make the most of the current year contribution caps.
In addition to changing the contribution caps, the government made further changes to the rules around contributions as part of the super reforms that commenced 1 July 2017. It is therefore important to understand the current rules and applicable contribution caps prior to making additional contributions pre-30 June 2018.
Age-Based Contribution Restrictions
Firstly, note that the types of contributions that may be made depends on the fund members age –
To satisfy the Work test, the individual must work at least 40 hours of paid work during a consecutive 30-day period each financial year in which the contributions are made.
Concessional contributions are also known as ‘before tax’ contributions as they are deductible to the entity that makes them, and are taxed in the recipient fund initially at the 15% contributions tax rate. These include employer super guarantee and salary sacrifice contributions, as well as personal contributions where the individual elects to claim a tax deduction. Note an additional 15% contributions tax (Div 293) also applies to individuals that earn in excess of $250,000 P/A.
From 1 July 2017 the previous requirement that you derive less than 10% of your income from employment sources in order to claim a tax deduction for personal contributions has been abolished. This means many individuals who previously had to enter into a salary sacrifice arrangement with their employer to top up their super may instead make their own personal concessional contributions.
The concessional contribution cap for the 2018 Financial Year is $25,000 for all individuals regardless of age.
Non-concessional contributions are also known as ‘after tax’ contributions and most commonly include personal contributions for which an income tax deduction is not claimed. These are not subject to contributions tax in the recipient fund.
From 1 July 2017 the government has introduced the concept of a Total Superannuation Balance (TSB) which is used in testing eligibility for non-concessional contributions. The TSB is determined on 30 June of the previous financial year and is calculated by adding up the value of your accumulation and retirement phase interests in super, less the value of any personal injury/structured settlement contributions that have been paid into super.
For the 2018 financial year, an individual with a TSB of >= $1.6M will have a non-concessional contributions cap of Nil.
The non-concessional contributions cap for the 2018 financial year is generally $100,000 (for individuals with a TSB < $1.6M).
Individuals under 65 years of age have the option of contributing up to $300,000 over a three-year period depending on their TSB – this is known as a bring forward cap.
The below table summarises the contribution cap and bring forward that is available based on TSB for an individual under 65 –
Transitional arrangements apply for individuals who triggered their bring-forward non concessional contributions cap in the 2016 or 2017 financial year (and this cap was not fully utilised pre 2018).
Where the non-concessional contribution bring-forward was triggered in the:
- 2016 financial year – the transitional cap in the 2018 financial year will be $460,000
- 2017 financial year – the transitional cap in the 2018 financial year will be $380,000
Timing is Everything
Finally, note that contributions are assessed against your caps in the year in which they are received by your fund(s), not in the year in which they are paid or a liability to pay arises. Therefore an individual should check their superannuation fund member account(s) to determine the total contributions which have been received in a given financial year.
Note that the 2018 federal budget has introduced further minor proposed changes to the rules around super contributions which will take effect in future years. Make sure you read Peter Ryan’s blog ‘SMSFs – Impacts from the Federal Budget’ for more details.
Speak to our team to ensure your super contributions are set up to benefit you and have taken into account the relevant updates. Get in touch with BLG Business Advisers online or by calling (02) 4229 2211 to arrange an appointment today.