Too much of a good thing
With the end of the financial year approaching, it’s important to remember that exceeding super contribution limits can cost you dearly.
Why are there limits on how much I can contribute to super?
While the Government wants to encourage people to save for retirement, it doesn’t want us treating superannuation as a tax haven. For this reason they’ve placed limits (‘caps’) on both ‘concessional’ (before tax) and ‘non-concessional’ (after tax) contributions.
What are the limits?
- The concessional contribution cap is $25,000 per year.
- The non-concessional contribution cap is $150,000 per year (or up to $450,000 in any three-year period under the ‘bring forward’ rule) for people under 65.
What happens if I contribute too much?
This depends on your circumstances, but generally:
- you may pay additional tax on the contribution, or
- we would have to return the excess amount of your contribution (ie above the limit) to you.
What if I exceed the limit unintentionally?
Exceeding the contribution limits is not uncommon, particularly as many people don’t realise that their employer’s superannuation guarantee (SG) contributions count towards the concessional contribution cap. For example, if your salary is $100,000 a year, your SG contributions alone are $9,000.
The Australian Tax Office may impose the additional tax penalties even if the excess contribution is a genuine mistake, although fund members can apply for a refund of up to $10,000 of excess concessional contributions without penalty (for a first-time breach).
Given the potentially serious consequences of breaching the contribution caps, it is important to speak to your financial planner if you’re unsure about your contribution amounts.
I thought the concessional contribution limit was higher for older people?
The Government had announced that from 1 July 2012 people over 50 with under $500,000 in their super would be able to make up to $50,000 of before-tax super contributions each year. This has been postponed until 1 July 2014, and all super investors are subject to the $25,000 limit.
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