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How to pay it forward…with your super

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You may have heard about contributions caps, caps that limit how much you can contribute to your super each year. There are now new rules around super that mean you can contribute more, helping you to grow your retirement fund.

Let’s start with the basics.

What are the super contributions caps in 2021?

As of 1st July 2021, you can contribute $27,500 to your super every financial year, this is inclusive of the amount your employer pays, plus any salary sacrifice payments you make. These are known as concessional caps.

What are non-concessional contributions?

Non-concessional contributions are payments made to your super after you have paid tax on that money. For example, you have some savings you want to put into super – you have paid tax on this when received as income from your employer and tax on the interest earned. Putting these savings into super is a non-concessional contribution. Currently, you can make non-concessional contributions of $110,000 per financial year.

Are non-concessional contributions tax-deductible?

You can claim a tax deduction for non-concessional contributions. Before you make a claim, you’ll need to complete a Notice of intent to claim or a vary a deduction for personal deductions and have this acknowledged by your super fund.

Come tax time, you can submit your claim for your contribution to be taxed at the 15% super tax rate, rather than your marginal tax rate. Not only does this boost your super, but it could also reduce your taxable income.

Remember, if you claim a tax deduction on non-concessional contributions, this will count towards your concessional cap contributions.

How much can I put into super in a lump sum?

The answer depends on how much you have already paid into your super in the financial year. If you have a lump sum to put into super, you’ll need to be mindful of the caps mentioned above. Read on to find out if you qualify for the bring-forward rule, allowing you to put more into your super.

What’s the bring forward rule?

For the past few years, you’ve only been able to contribute $25,000 per financial year (as a concessional contribution) into your super. With the bring-forward rule, you can use any unpaid contributions and pay more into your super now. Confused?

Let’s say you have a salary of $100,000 and for the purpose of this exercise, this hasn’t changed for a few years.

Your employer would have paid $9,500 into your super each financial year. This is $15,500 below the $25,000 limit. Assuming you haven’t been salary sacrificing, you then have unused contributions of $15,500 left each financial year that you can utilise.

The rules are now in place but date back to the 2018-2019 financial year, which means that this financial year, you can bring forward three years’ worth of contributions. From the example above, that is $15,000 per year, a total of $46,500 could be contributed.

Of course, there are some eligibility requirements. Your super balance will need to be less than $500,000 at the end of the previous financial year and you’ll need to be under 67. Unused amounts will be available for a maximum of five years.

Contact us to talk about these extra contributions.  Future you will thank younger you for doing so.

It is very important that you understand that the information above is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. It is also worth noting that the Australian financial and taxation system is ever-changing, and the information above may no longer be relevant. Again, we suggest seeking professional advice from a financial adviser before proceeding.

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