26. Concessional contribution limit for defined benefit members
On 1 July 2007, new concessional contribution limits became effective, replacing the former aged based contribution limits. As a defined benefit member, you should check if you will exceed this limit, especially if you are salary sacrificing additional large amounts to your Super.What are concessional contribution limits?
Concessional contributions (also referred to as before-tax contributions) include both employer and salary sacrifice contributions.
As a defined benefit member you will be allocated “notional concessional contributions” which will count towards your concessional contribution limits.
The table below outlines the specific limits for concessional and nonconcessional contributions.
As a defined benefit member, how could I be affected?
If you are currently making contributions via a salary sacrifice arrangement, you may need to review your strategy so that your salary sacrifice and notional concessional contributions are within your limit. If they exceed the concessional contribution limit in any given financial year, you will be required to pay additional tax.
What is my contribution limit? |
|
|---|---|
| Concessional (or before-tax) contributions | Non-concessional (or after-tax) contributions |
Limited to $50,000 a year1 |
Limited to $150,000 a year2 |
Concessional contributions include both employer and salary sacrifice contributions. If you’re 50 or over, transitional rules allow you to make concessional contributions of $100,000 a year, until 30 June 2012. (This amount will not be indexed). Any contributions made over this limit will be taxed at the top Marginal Rate (plus the Medicare levy) and will be 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. Any contributions made over this limit will be taxed at the top Marginal Rate (plus the Medicare levy).
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1. These limits will be indexed to Average Weekly Ordinary Time Earnings (AWOTE). The limits for concessional contributions will only be increased by amounts of $5,000 once the increase is greater than $5,000.
2. The limit for non-concessional contributions will always be three times the limit for concessional contributions.
How can I calculate my concessional contribution?
As a defined benefit member, your concessional contribution will be calculated as the sum of:
- Notional concessional contributions; plus
- any employer contributions to an accumulation account (if any); plus
- any additional salary sacrifice contributions you make to an accumulation account (if any).
Your notional concessional contributions will be an amount calculated in accordance with a formula and assumptions prescribed by the Government. It is not the actual amount that your employer pays to the Plan on your behalf.
At the end of each financial year (to 30 June), Russell will notify the Australian Taxation Office (ATO) of the total concessional contributions received for the year in respect of your membership with Russell SuperSolution. The first reporting will be for the year ending 30 June 2008.
Your notional concessional contributions are calculated using the formula below:
1.2 x (New Entrant Rate x S x D/365 – M)
Where
- New Entrant Rate is the rate given in our letter to you detailing the Concessional Contributions Limit sent in January 2008. You can also contact our Helpline for your rate.
- S is equal to your superannuation salary at 1 July each year
- D is equal to the number of days during the financial year that you were a member of the benefit category
- M is the amount of compulsory member contributions paid from after tax salary that relates to your defined benefit.
The examples set out below are not specific to your fund and are to be used as a guide only.
| Example 1 – John’s fund requires him to make 5% compulsory contributions | Example 2 – Jane makes 5% compulsory contributions on a before-tax basis |
John’s salary at 1 July 2007 is $60,000, his New Entrant Rate is 10% and John makes 5% compulsory after tax contributions (which is equal to $3,000). In addition, because of a long standing arrangement, John’s employer pays 3% of his salary into an accumulation account. John has also been paying $100 a month on a voluntary basis into his super through a salary sacrifice arrangement. 1. John’s estimated notional concessional contributions for the full financial year will be: 1.2 x (10% x $60,000 - $3,000) = $3,600 2. John’s employer also pays 3% x $60,000 = $1,800 3. John salary sacrifices $100 x 12 (months) = $1,200 Therefore, John’s estimated concessional contributions for 2007/8 will be $6,600. As it stands, John has scope to make additional before-tax contributions of $43,400, i.e. $50,000 (the limit) - $6,600. |
Jane is in the same fund as John, is paid the same salary but makes her compulsory contributions through salary sacrifice. Like John, she also pays an additional $100 each month to top up her super. 1. Jane’s estimated notional concessional contributions for the full financial year will be: 1.2 x (10% x $60,000 - $0) = $7,200 Please note that as Jane’s contributions are before- tax, they are not included in her notional concessional contribution calculation. 2. Jane’s employer also pays 3% x $60,000 = $1,800 3. Jane salary sacrifices $100 x 12 (months) = $1,200 Therefore, Jane’s estimated concessional contributions for 2007/8 will be $10,200. As it stands, Jane has scope to make additional before-tax contributions of $39,800, i.e. $50,000 (the limit) - $10,200. |
Thinking about salary sacrificing?
Before commencing a salary sacrifice strategy, we recommend you talk to a qualified Financial Adviser.
We have handpicked a small number of qualified financial advisers through our Adviser Referral Program, who we believe are best placed to provide personalised financial advice to you.
To find out more, call us on 1800 555 667.
Will I need to monitor my concessional contributions against my limit?
Yes, it will be your responsibility to monitor your concessional contributions against your limit each financial year. Should you exceed your limit, you will need to pay the additional tax. Therefore, it will be up to you to implement any contribution strategy and/or payroll changes to ensure you do not pay any excess tax.
Staying within your limit when salary sacrificing.
If you are considering, or are already using, a strategy to salary sacrifice additional contributions or part of your income into super, you will need to monitor your contribution levels. If you are at risk of exceeding your limit, you may need to reduce your nominated additional salary sacrifice contributions. Remember, salary sacrifice contributions that you are required to make to fund your defined benefit are considered part of the notional concessional contribution amount.
As mentioned, it is your responsibility to keep track of your concessional contribution limit and you will be liable to pay more tax if you exceed it. For example, if your limit is $50,000 and your notional concessional contribution is equal to $20,000 you may salary sacrifice an additional $30,000 during the same financial year without incurring a tax penalty.
What if I exceed my concessional contribution limit?
If the total concessional contributions reported on your behalf to the ATO exceed the relevant contribution limit (i.e. $50,000 or $100,000 as explained above), then 31.5% tax will apply (in addition to the usual 15% contributions tax) on the excess contributions. This means that contributions above this limit will be taxed at the highest marginal rate (46.5% including the Medicare levy) and counted towards your non-concessional contribution limit. Note that the ATO will combine the reported concessional contributions for you from all superannuation funds. If you are liable, the ATO will send the assessment for the additional tax to you.
Were you a Defined Benefit member on 5 September 2006?
If you were a Defined Benefit member on 5 September 2006, special conditions may apply. If certain criteria are not breached, your notional concessional contributions will be capped at the concessional contribution limit applicable to your age (even if the calculated formula produces a higher amount) and you will not have to pay excess tax on these contributions.
Need more info?
If you have any questions regarding how the new limits could affect you, please call our Helpline on 1800 555 667.
The notional concessional contribution will be less than the limit for the vast majority of members. However, if for example, your notional concessional contribution is equal to $60,000 and your limit is only $50,000 the notional concessional contribution will be set to $50,000 (and no additional tax will be payable on the extra $10,000). However, in this example, if you had a salary sacrifice strategy in place, you would exceed your limit and subsequently pay tax on those salary sacrifice contributions.
Issued by Russell Employee Benefits Pty Ltd ABN 70 099 865 013, AFSL 220705 (“REB”). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. The information has been compiled from sources considered to be reliable, but is not guaranteed. Any examples have been included for illustrative purposes only and should not be relied upon for the purpose of making an investment decision. Past performance is not a reliable indicator of future performance. Total Risk Management Pty Limited ABN 62 008 644 353, AFSL 238790 (“TRM”) is the trustee of the Russell SuperSolution Master Trust and the issuer of the Product Disclosure Statement (“PDS”) for the Russell SuperSolution Master Trust. The PDS can be obtained by phoning 1800 555 667 or by visiting www.russell.com.au Any potential investor should consider the latest PDS in deciding whether to acquire, or to continue to hold, an investment in any Russell product. REB and TRM are part of the Russell Investment Group (“Russell”). Russell or its associates, officers or employees may have interests in the financial products referred to on this website by acting in various roles including broker or adviser, and may receive fees, brokerage or commissions for acting in these capacities. In addition, Russell or its associates, officers or employees may buy or sell the financial products as principal or agent. SS_FACT_DefBen_V2_0801