Crystal Wealth Newsroom
Are you maximising your super contributions? Now’s the time to act
Contributions Caps
- The concessional contribution cap is $25,000 for all ages. Concessional contributions are employer contributions and personal contributions for which you claim an income tax deduction.
- The non-concessional contribution cap is $100,000. Non-Concessional contributions are personal contributions for which you do not claim an income tax deduction.
You may also be able to utilise concessional contribution catch-ups.
If you did not fully utilise your concessional contribution cap of $25,000 in the last two financial years, you can use the remainder of the prior year caps. To do so, your Total Super Balance (TSB) must be under $500,000 as of 30 June 2020.
As these contributions are deductible, this provides an opportunity for a larger deduction and tax-saving this year.
For example, if you contributed $15,000 in 2018/19 and $15,000 again in 2019/20, you would have a further $20,000 available to contribute this year on top of the $25,000 annual cap, bringing your total possible concessional contribution to $45,000.
The opportunity to carry forward unused concessional contribution amounts is on a five-year rolling basis. Therefore the $10,000 unused in 2018/19 can be carried forward as far as 2023/24.
The TSB requirement of under $500,000 on 30 June of the previous year must be met in the year you wish to use carry-forward amounts. This may be very useful if you have a one-off large capital gain and can make personal concessional contributions to minimise tax.
You may also be able to bring forward non-concessional contributions
Currently, the non-concessional cap is $100,000 per financial year. You may also take advantage of the bring-forward rule, which allows you to bring two years’ forward and contribute $300,000.
You must be under 65 years old and not previously triggered the bring-forward arrangement in the past two years. Your TSB must also be under $1.4 million as of 30 June 2020. If your balance was between $1.4 million and $1.5 million, you can contribute up to $200,000. Otherwise, the maximum is $100,000.
Legislation is currently in parliament to allow 65 and 66-year-olds to utilise the bring-forward rule and is likely to become law.
If it is legislated, you will be able to bring forward contributions before turning 67 without meeting the work test.
This may create additional capacity to contribute for people selling their home.
Currently, you can make a downsizer contribution of up to $300,000 after age 65 without meeting the work test, in addition to the concessional and non-concessional contribution caps.
For a couple aged 65-66, this would increase their opportunity to contribute to $1.25 million compared to $850,000. (2 x concessional $25,000 + 2 x non-concessional bring-forward $300,000 + 2 x downsizer $300,000.)
Please note, some requirements must be met to access the downsizer contribution.
Please be aware of age limits and the work test
Those aged 65 to 66 no longer need to meet the work test. You may make voluntary concessional contributions that are pre-tax and personally deductible. You may also make non-concessional contributions provided your Total Super Balance (TSB or total of all of your super benefits) does not exceed $1.6million as of 30 June 2020. The total superannuation balance cap is increasing to $1.7 million from 1 July 2021.
If you are aged 67 to 74 and have a TSB of less than $300,000 as of 30 June 2020, and you met the work test in 2019-20, you can contribute in 2020-21 without meeting the work test under the work test exemption.
Contribution caps will be indexed on 1 July
The concessional cap will be indexed to $27,500. The non-concessional cap will increase to $110,000 (being four times the concessional cap).
This would allow for $330,000 to be contributed under the bring-forward rule in 2021/22.
This may mean it is beneficial to wait until 2021/22 to trigger the bring-forward rule if you are not limited by age restrictions.
Spouse contributions
By making a non-concessional contribution on behalf of a spouse, you may be eligible to claim a tax offset of up to $540 a year. The age limit for spouse contributions has been extended by five years to 74, but the spouse must meet the work test or the work test exemption.
Pensions – Transfer Balance Cap Indexation rise
At present, the maximum amount of your super balance that can be converted to pension phase is $1.6 million, which means the remainder of your super balance remains in the accumulation phase where the earnings are taxed at 15% versus pension phase where it is tax-free.
This cap is known as the Transfer Balance Cap (TBC) and will be indexed on 1 July 2021 to $1.7 million.
For those of you considering commencing a pension, it may be beneficial to wait until 1 July to maximise the amount you can convert to pension.
Pensions – Pension Minimums
The minimum pension drawdown was halved back in March 2020 for FY21. This will revert back in July.
To discuss how you can maximise your super contributions in the lead up to the EOFY, get in touch with Priscilla or another member of the Crystal Wealth team, who’ll only be too happy to help.