How does it work?
There are many important tax benefits associated with investing in super. But to make the most of these benefits you need to understand the different types of super contributions, and be aware of the limits (referred to as ‘caps’) that exist on how much you can contribute to super tax-effectively each financial year.
The two main types of contributions that have a cap are:
- Concessional (before-tax) contributions – these are generally made to a super fund by your employer, or if you’re self-employed, those made by you for which you claim a tax deduction. Examples include Superannuation Guarantee (SG) contributions, salary sacrifice amounts, and any amount allowed as a personal deduction in your income tax return.
- Non-concessional (after-tax) contributions – these are personal super contributions which you or your spouse makes for you with after-tax income. The following table shows the caps that currently apply to both concessional and non-concessional contributions. It also details the extra tax that would apply to any amounts that exceed the cap.
The following table shows the caps that currently apply to both concessional and non-concessional contributions. It also details the extra tax that would apply to any amounts that exceed the cap.
|Concessional contributions||Non-concessional contributions|
|Maximum contributions allowed (2021/22)||$27,500 cap||$110,000 cap for those with a total superannuation balance under $1.7 million1.|
|Tax on amounts over the cap||
Release amounts from super
|Included in your assessable income for the financial year and taxed at up to 47% including Medicare Levy||47% including Medicare Levy|
|Do not release amounts from super||Up to 32% including Medicare Levy (on top of the 15% paid by the super fund)||Excess non-concessional contributions may be withdrawn together with the associated earnings. The earnings will be included in your assessable income and taxed at up to 47% including Medicare Levy.|
|Important information||Any concessional contributions in excess of the cap which are not released from super will also count towards your non-concessional contributions cap||
If you are under age 67 on 1 July and your total superannuation balance is less than $1.48 million, you may be able to bring forward the next two years’ worth of non-concessional contributions. This effectively allows you to contribute up to $330,0002 in one financial year.
Note: Individuals who accessed up to $20,000 of their super under the COVID-19 early release will be able to re-contribute these amounts between the 2021/22 and 2029/30 financial years without them counting towards their non-concessional contributions cap. The re-contribution cannot exceed the amount received under COVID-19 early release, nor can a tax deduction be claimed.
What does it mean for me?
There are two key reasons why you need to know exactly what these amounts are:
- If you haven’t reached your concessional contributions cap, there may be an opportunity to consider boosting your super and reduce your potential taxable income this financial year by making salary sacrifice contributions to super.
- If you have reached your cap, you may be subject to penalty tax on any excess super contributions you make before 30 June as per the previous table.
1. After-tax contributions may be made up to each financial year cap and up until an individual’s total superannuation balance is $1.7 million. Post this, after-tax contributions will be unable to be made unless the total superannuation balance drops below $1.7 million.
2. This is known as the Three-year Bring Forward Rule which allows you to combine up to three years of after-tax contributions in one go if you haven’t already triggered it in the previous two years. There are restrictions on the maximum amount you can contribute if your total superannuation balance is between $1.48 and $1.69 million on 30 June at the end of the previous financial year.
Things you should know
This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The information provided is factual only and does not constitute financial product advice. Before acting on it, you should seek independent financial and tax advice about its appropriateness to your objectives, financial situation and needs. It has been prepared without taking account of your objectives, financial situation or needs. It is current at the time of publication 24 June 2021 and is subject to change.
The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. It has not been prepared by a registered tax agent. You should seek independent professional tax advice from a registered tax agent about any liabilities, obligations or claim entitlements that arise, or could arise, under a taxation law.
This information may contain material provided by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. Information that has been provided by third parties has not been independently verified and the Westpac Group is not in any way responsible for such information.
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.
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