21. New Contribution Limits
From 1 July 2007, limits will be introduced regarding how much you can contribute to super in any particular year. These limits apply to both concessional (or before-tax) contributions and non-concessional (or after-tax) contributions. But first of all, let’s look at how these types of contributions are different.
What are concessional contributions?
These contributions are made before tax is taken out of your salary. They include super guarantee contributions made by employers and salary sacrifice contributions. Concessional contributions are taxed at a lower ‘concessional’ rate of 15%.
What are non-concessional contributions?
These contributions are deducted from your salary after your income tax has been calculated. They include any one-off contributions you make to your super account. To make a non-concessional contribution you must be under age 65. If you are between 65 and 74 you need to meet a ‘work test’ of 40 hours gainful employment within a 30-day period in the financial year in which you contribute.
| What are the new limits? | |
|---|---|
| Concessional contributions | Non-concessional contributions |
| Are limited to $50,000 a year.1 | Are limited to $150,000 a year.1 |
| Concessional contributions include both employer and salary sacrifice contributions. Any contributions made over this limit will be taxed at the top Marginal Rate (plus the Medicare levy) and counted towards your non-concessional contribution limit. | If you’re aged under 65 you can bring forward two years of contributions. For example, a person under age 65 will be able to make up to $450,000 of contributions in the 2007–08 financial year but will then be unable to make further non-concessional contributions until the 2010–11 financial year. |
| If you’re 50 or over, transitional rules allow you to make before-tax contributions of $100,000 a year, until 30 June 2012. (This will not be indexed) | Any contributions made over this limit will be taxed at the top Marginal Rate (plus the Medicare levy). |
1 Indexed to Average Weekly Ordinary Time Earnings (AWOTE).
What happens if I go over my limit?
If you contribute beyond your limit, you will be liable to pay more tax. Any contributions which exceed the limit will be taxed at the top Marginal Rate (plus the Medicare levy). It’s up to you to monitor your contributions and ensure the limit is not exceeded – it’s also important to remember that the limits are flat, so if you are contributing to more than one super fund you still have the one limit to adhere to.
If you are making salary sacrifice contributions (which are classed as a concessional contribution and therefore have a limit of $50,000 per year) you will need to monitor your contribution levels. If you are in danger of exceeding your limit, you may need to reduce your nominated salary sacrifice contribution.
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