Keeping up with changes to superannuation contribution rules over the past couple of years has been a challenge for super fund members. The tax office reports that in the 2018/19 financial year it issued 192,000 determinations to people who had breached their contribution caps.
The contribution caps were changed in July 2017, when the concessional cap came down from $30,000 a year (or $35,000 for people over 50) to $25,000. The non-concessional cap came down to $100,000 (and to zero for people with a total super balance of $1.6 million or more).
The cap changes were part of government superannuation policy aimed at better targeting concessions to ensure that super system is equitable and sustainable.
The ATO issued 171,000 determinations to people who breached the concessional contribution cap and 21,000 determinations to people who breached the non-concessional cap.
Where an individual’s contributions (including those made by their employer) exceed the annual contribution cap, the excess is included in the individual’s assessable income and taxed at the marginal rate less a 15 per cent tax offset (representing the contribution tax).
The individual is also subject to a charge based on the shortfall interest charge to cover the late payment of the tax.
To help people on high incomes avoid cap breaches, this year the Government amended superannuation law, so that where a person receives contributions from more than one employer they can apply to the ATO to opt out of the superannuation guarantee in respect of an employer and negotiate with the employer to receive additional cash or non-cash remuneration.
The employer and employee may come to an agreement to recommence super contributions at any point. This may be relevant where circumstances change and the employee no longer expects to exceed their cap.
In another change to contribution rules, super fund members who plan to claim a deduction on personal contributions must ensure they have sent a notice of intent to claim or vary a deduction for personal super contributions and have received an acknowledgement from their super fund.
In July 2017 restrictions on eligibility for claims on personal super contributions were removed. If you are under 65 years of age, you can make personal after-tax contributions to your super fund, even if you are not working.
People aged 65 to 74 need to meet a work test to be eligible to make a contribution and claim a tax deduction. You must have worked at least 40 hours within 30 consecutive days in a financial year before a super fund can accept any non-concessional contributions.
Deductions must be paid out of after-tax income to be eligible for a claim. Superannuation guarantee or salary sacrifice contributions are not eligible.
Personal contributions are classified as non-concessional contributions and count towards the non-concessional contribution cap.
And in another change to contribution rules, since the start of the financial year, super fund members have been able to use new unused concessional cap carry forward rules to increase their contributions.
The five-year carry forward period started on 1 July 2018, so the 2019/20 year is the first one when you can actually make extra concessional contributions using any unused super contribution cap.
The concessional contribution cap is $25,000 a year. Unused amounts accrued from 1 July 2018 can be carried forward and used on a rolling five-year basis. Amounts carried forward that have not been used after five years will expire.
So, if you made $20,000 of concessional contributions in 2018/19, you can carry forward $5000 of unused cap to use over the next five years.
To be eligible to make catch-up contributions your total superannuation balance must be less than $500,000 at 30 June the previous financial year.
Work test rules apply for people over 65. The work test says that between the ages of 65 and 74 you must have worked at least 40 hours within 30 consecutive days in a financial year.
After age 75 you cannot make any personal contributions to super, but if you are still working your employer can make superannuation guarantee payments on your behalf.
To use up carried forward cap amounts you may use salary sacrifice arrangements or personal deductible contributions.