Superannuation Contributions Limits
Fri Feb 15 2008Whilst there is technically no limit on the amounts that may be contributed as “concessional” contributions to super, contributions that exceed specified “caps” may be taxed at a rate of 46.5%. Concessional contributions are those contributions that are being claimed by the contributor as a tax deduction.
For the 2007/08 financial year, the concessional contribution cap is $50,000 however, for people aged 50 and over, the limit is $100,000. These limits are applied “per person, per financial year” so contributions from multiple sources are aggregated.
Concessional contributions are treated as taxable income to the superannuation fund that receives the contribution. As such, they are taxed inside the superannuation fund at a rate of 15%.
Contributions that are not subject to a tax deduction are referred to as non-concessional contributions. Non-concessional contributions are limited to a maximum of $150,000 per person per year, however a person aged under 65 may bring forward up to three years contributions and effectively contribute up to $450,000. Non-concessional contributions are not taxed as income to the receiving superannuation fund and are therefore not subject to the 15% contributions tax.
However, where non-concessional contributions exceed the relevant cap, the excess will be taxed at a rate of 46.5%.
If a superannuation fund receives a non-concessional contribution that exceeds the relevant non-concessional contribution cap of $150,000 (or $450,000 under the 3 year averaging arrangement), the fund is required to refund the contributions that exceed the cap. This requirement should help to eliminate the risk of making excessive non-concessional contributions however, if non-concessional contributions are made to a number of unrelated superannuation funds, the excessive contributions will not be picked up, resulting a potential 46.5% tax impost.
With the increased attractiveness of superannuation, many people are looking to access the superannuation system as a structure for holding their investments. It is important to look at who can make contributions to a superannuation fund.
Generally, anyone under the age of 65 is able to make a contribution to a superannuation fund. There is no requirement that the contributor be working, in fact they may never have worked. There may however be restrictions on their ability to claim a tax deduction for personal contributions.
Between ages 65 and 74, concessional and non-concessional contributions may still be made provided a "work test" is met in each year of contribution. To meet the work test, the contributor must be employed, or self-employed, for gain or reward for a period of at least 40 hours worked over not more than 30 consecutive days, in the year in which the contribution is made. Contributions can not be made once a person turns 75.
This article was taken from the PIS 2007 Last Quarter Newsletter. Click here to download the full newsletter
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