Superannuation remains one of, if not the most, tax effective structures to build wealth in for retirement. With earnings being taxed at a maximum of 15% (or 10% on discounted capital gains) it is a very attractive option. In addition to this, generally once a person reaches 60, retires and starts drawing a super pension, not only are super withdrawals tax-free, so too is the income and capital gains on the investments within the pension account. The franking credits on Australian share income is then recorded as a refund to the fund.
Over time though, it has become more difficult to put money into super due to restrictions on how much a person can contribute on an annual and lifetime basis. Given this, it is important to understand how you can make your super work for you, and what contribution options are available depending on your individual circumstances.
Concessional Contributions
Firstly a member can make concessional contributions of up to $25,000 per annum. This type of contribution generally includes employer superannuation payments, salary sacrifice contributions and any personal contributions made to your superannuation fund for which a tax deduction is claimed. The amount being contributed is taxed at 15% for those earning less than $250,000 per annum, or 30% for those earning more than $250,000 per annum.
It is also possible to make additional concessional contributions. From 1 July 2018, individuals can carry forward their unused concessional contribution cap for up to five financial years for use in a future financial year, provided their total super balance is less than $500,000 at 30 June of the prior financial year.
Non-Concessional Contributions
A member can also make non-concessional contributions of up to $100,000 per annum as personal contributions. Non-concessional contributions (NCCs) are not subject to contributions tax but can be restricted depending on the total super balance as at the end of the prior financial year.
These type of contributions can be made by individuals up to age 74. Contributions must be received no later than 28 days after the month in which the member turns age 75. A work test is required to be met where the member is age 67 or over at the time a NCC is made unless the work test exemption is being utilised.
Bring Forward Rule
Members under age 65 may effectively bring-forward up to two years of the standard non-concessional contributions cap, allowing them to contribute up to $300,000 without exceeding their NCC cap. The number of years that may be brought forward is determined by the member’s total superannuation balance at the end of the prior financial year.
| Total super balance on 30 June of prior financial year | Contribution and bring-forward available |
| Less than $1.4m | 3 years ($300,000) |
| $1.4m to <$1.5m | 2 years ($200,000) |
| $1.5m to <$1.6m | 1 years ($100,000) |
| $1.6m and above | Nil |
Small Business Super Concessions
Another common way to top up super for business owners is to utilise the Capital Gains Tax (CGT) concessions for small business owners. The current CGT Lifetime limit is $1,565,000. An individual may contribute certain proceeds from the sale of assets used in the course of carrying on a small business, and elect for them to count towards a separate lifetime CGT cap, rather than the non-concessional or concessional caps. This strategy can provide a tax-effective way to increase superannuation and help save more for retirement.
The small business capital gains tax (CGT) concessions can be very complex. Clients should seek professional tax advice from a qualified tax professional in regard to the CGT small business concessions.
While these are just some of the ways in which a member can contribute to Super, other options include spouse contributions, downsizer contributions and contributions for First Home Super Saver Scheme.
As shown above there are many limitations and rules around super contributions so it is very important for most people to start planning on how to maximise their super well before their eventual retirement, otherwise they might have funds locked out of super resulting in more tax than necessary.
