There are several ways in which to contribute additional money to your super balance. These additional contributions are referred to as personal contributions. The maximum amount you can contribute is referred to as your personal super contributions cap.
Contributions can be deposited into your super account either before or after you receive your take-home pay. It’s important to note that there are caps to the amount of money you can deposit into your super account each financial year, and we’ll take a look at those personal super contribution caps below.
So, which types of payments are considered personal contributions, and what are the super personal contribution caps?
What are personal contributions?
Personal super contributions are before-tax (also know as concessional and reportable super contributions) or after-tax payments made into your superannuation account. These are made in addition to your superannuation guarantee (SG) contributions, which your employer contributes. Before-tax contributions are referred to as concessional contributions, while after-tax payments are non-concessional.
Concessional contributions (before-tax)
Personal concessional contributions that you can pay before tax include:
- Salary sacrifice payments
- Any personal contributions that you claim as a tax deduction.
Non-concessional contributions (after-tax)
The following payments are considered personal non-concessional superannuation contributions:
- Member voluntary contributions that you have not claimed a tax deduction on
- Spouse contributions
- Any other contributions you or your employer makes after tax.
Which contributions are not impacted by personal super contribution caps?
- Government co-contributions
- Downsizer contributions, which come from the proceeds of selling your home
- Re-contributing amounts originally drawn from your super account during the COVID-19 pandemic.
What are the personal super contribution caps?
There are caps to how much you can contribute to your superannuation fund, on top of your SG payments. These contribution caps are determined by the Australian Taxation Office and Australian legislation. They may change from financial year to year. It is important to note that these caps apply to each person and not each account that you may hold.
Concessional contribution caps
The amount you can contribute to your super balance before tax is $27,500, for the 2022/23 financial year. Therefore, when contributing to your account through salary sacrifice or another form of before-tax contribution, you must be mindful of this cap. From the 1st of July 2017 to the 30th of June 2021, the concessional contribution cap was $25,000.
There is also a clause known as the carry forward rule. This stipulates that you may add the previous year’s unused cap to the cap of the current financial year, over five years. For example, if you only contributed $17,500 in the last financial year, you may be able to contribute $37,500 in this financial year. To be eligible for carry forward contributions you must have had a total super balance of under $500,000 at the end of the previous financial year.
Non-concessional contribution caps
For the 2022/23 financial year, you may contribute up to $110,000 in personal after-tax contributions. This figure may change in some circumstances, such as if you paid excess before-tax contributions. If that is the case, your personal super contribution cap will be lowered for that financial year, to compensate.
The carry forward rule also applies to non-concessional contribution caps. Essentially, this means that instead of being caped to $110,000 over one financial year, you may extend that cap to $330,000 over three financial years. This is useful in the event that you wish to contribute a large one-off lump sum. E.g. you could contribute $200,000 in one financial year, $100,000 in the second, and $30,000 in the third financial year.
Eligibility for concessional contributions is as follows:
If your super balance is less than $1.47 million at the end of the previous financial year you can contribute $330,000 in a financial year, between 1.47 – 1.59 million you can contribute $220,000, between 1.59 – 1.7 million you can contribute $110,000 and above 1.7 million you’re ineligible for non-concessional contributions. You can read more about these caps on the ATO’s website.
Here are some examples of a personal super contribution cap at work
Let’s take a look at some examples of personal contribution caps in action.
Example of concessional contribution cap
Lorraine works full-time and her income for the financial year is $120,000. Her employer pays 11% superannuation guarantee contributions, which total $13,200. Lorraine has also established a salary sacrifice agreement with her employer, contributing additional money to her account, before tax.
Lorraine wants to contribute $600 each week through salary sacrifice. However, she seeks expert superannuation advice and realises that this amount would total $31,200 for the financial year. That would surpass the concessional contribution cap and she would be penalised. Therefore, Lorraine settles on $500 each week, totalling $26,000. Now, she falls below the personal contribution cap for the financial year.
Example of non-concessional contribution cap
The non-concessional contribution cap is much higher than the concessional contribution cap. Therefore, it tends to be those who come into large amounts of money or high-revenue business owners who must be mindful of this cap.
Billy inherited $500,000 after his grandmother passed away. He wants to put $150,000 into his superannuation account, but he has already contributed $30,000 for the year to date. He is self-employed, so pays his superannuation as personal contributions.
Billy has a few options here. He can choose to contribute only $80,000 for this financial year, on top of the $30,000 that he has already contributed. Or he can apply for a tax deduction for some of the contributions that he has already deposited, so that he may free up some of his cap space. The best course of action for Billy would be to contact a superannuation advisor.
What happens if I contribute too much?
If you exceed the concessional personal contributions cap without realising it, the ATO will inform you in writing. They will explain your options, which may include:
- You may choose to withdraw up to 85% of the excess amount that you have contributed
- You may be able to make use of the bring forward rule, discussed in an earlier section
- Chat with a super advisor about the best course of action in your situation.
The ATO will manage the withdrawal of your money from your superannuation account, and you may need to pay additional tax. You must avoid this eventuality by ensuring you understand personal super contribution caps.
Expert super advice, today
If you’re looking for superannuation advice regarding personal super contribution caps, you’ll need to speak to the experts. Get in touch with us today for expert super advice.