Most of us have a goal to have as much superannuation as we can so we can retire comfortably in the future.
To increase our superannuation, many of us make additional super contributions to our individual funds. But making too many contributions will result in an additional tax burden.
There are caps on the amount you can contribute to your superannuation fund each financial year that are taxed at lower rates. If you contribute more than these caps, you may have to pay extra tax.
There are two types of superannuation payments:
1. Concessional (before-tax) contributions
These include compulsory employer contributions; salary sacrifice contributions; and contributions for which a tax deduction has been claimed.
2. Non-concessional (after-tax) contributions
These include personal contributions that have not been claimed as a deduction; spouse contributions; and contributions which exceeded your before-tax cap.
The capped amount and how much extra tax you may have to pay depends on the type of contribution made and your age.
Your superfund can accept super contributions from members over 65 years of age if they meet the work test. To be eligible to make contributions to your super, if you are aged between 65 and 74, you must have worked at least 40 hours over 30 consecutive days in the financial year you wish to make a contribution.
Once over 75 years of age, only superannuation guarantee contributions (mandated contributions) are accepted. If you are working and eligible, your employer must pay the superannuation contributions at 9.5 percent of your gross wage.
Non-mandated contributions can be accepted in the following circumstances:
• Members under 65 years of age
All types of non-mandated contributions are acceptable. However, a fund can only accept personal contributions made by the member if they have your TFN.
• Members aged 65 or over but under 70
All types of non-mandated contributions if you have a TFN and you are gainfully employed on at least a part-time basis.
• Members aged 70 or over but under 75
Only employer contributions and personal contributions are acceptable. You must have a TFN and you must be gainfully employed on at least a part-time basis. For a member turning 75, the contribution must be received no later than 28 days after the end of the month that the member turns 75.
• Members aged 75 or over
Non-mandated contributions are not allowed.
The bring-forward rule
If you are under the age of 65 and contribute more than $180,000 in the 2015/16 financial year, you will automatically trigger the bring-forward rule for the next two years. Once this happens, the normal non-concessional (after-tax) contributions cap doesn’t apply to the next two years. Instead, your total contributions over the three years can’t go over $540,000.
Certain personal contributions may be excluded from counting towards your non-concessional (after-tax) contributions cap for a financial year. These exclusions include contributions:
• Made from personal injury payments
• You have chosen to use the CGT (retirement exemption) cap amount and have not gone over your life time limit
The bring-forward rule can only be triggered in a year in which you are aged 64 or less on July 1.
Once you have triggered the bring-forward rule, you cannot make further non-concessional contributions into your SMSF until after the third financial year. This is because you have used up your annual limits for three financial years.
If you are aged between 65 and 74, you can contribute up to $180,000 each year of after-tax earnings to your super without attracting a higher tax rate, but you’ll need to demonstrate that you have worked at least 40 hours over 30 consecutive days in that financial year.
A lot of people have missed good opportunities to make larger contributions into their SMSF simply because they have not stayed informed of changes to government policy.
It pays to have a good understanding and be well informed by an industry expert to ensure that you have maximum superannuation available to your during your later years.
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