Super contributions are categorised as either compulsory or voluntary contributions. Compulsory Superannuation contributions are those made under the provision of an industrial award or according to legislation.
Legislation for compulsory contributions sets out both the type of fund an employer must contribute to and the minimum amount that must be contributed. Voluntary Super contributions may also be made by or on behalf of a member to a superannuation fund.
The SIS Regulations prescribe the minimum contribution standards that must be met for a fund to accept a contribution on behalf of a member. The purpose of the contribution standards is to ensure that contributions are for retirement income purposes, and not for the purpose of accumulating capital in a tax advantaged environment.
For financial planning and tax purposes, contributions made to a superannuation fund are classified as either:
- Concessional contributions: contributions that attract the 15% contributions tax;
- Non-concessional contributions: contributions that do not attract the contributions tax.
Limits apply to the amount of each type of contribution that can be made before incurring additional tax penalties.
From 1 July 2007 a cap or limit applies to the amount of contributions that can be made to a superannuation fund and receive concessional tax treatment. A higher rate of tax applies to contributions in excess of the limits. There are two caps that apply to contributions depending on the type of contribution being made.
Concessional contributions are generally contributions which have been included in the assessable income of the fund. That is, employer contributions, including those made under a salary sacrifice arrangement, and personal contributions for which the person has claimed as a tax deduction.
Existing concessional contribution caps
A $25,000 per annum per individual cap currently applies to concessional contributions (i.e. employer contributions and personal contributions claimed as a tax deduction). The purpose of the cap is to limit the amount of contributions that can be taxed concessionally in superannuation funds in an income year (the rate of tax for a superannuation fund is 15%).
Non-concessional contributions are often referred to as ‘after-tax contributions’ because they are usually made from after tax funds. They are generally personal contributions that have not been claimed as a tax deduction.
They include contributions made on behalf of a spouse, the Government Super Co-contribution, and excess contributions above the concessional contributions cap.
Existing non-concessional contributions cap
The cap applying to non-concessional contributions is four times the concessional contribution cap (i.e. $100,000).
People under the age of 65 in an income year are able to bring forward two years’ worth of cap on non-concessional contributions (and potentially have a $300,000 non-concessional cap).
For people aged between 65 and 74, age and work based tests apply for non-concessional contribution purposes. People aged 75 and over are not eligible to make non-concessional contributions (can only make certain concessional contributions called mandated employer contributions).