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Important changes to taxation of super contributions
From 1 July 2009, the maximum amount you can contribute to super from pre-tax income, without incurring additional tax of 31.5%, has halved.
The following table shows concessional contribution maximums (or ‘caps’) that apply from 1 July 2009:
| Age |
Concessional cap |
| If under age 50 |
$25,000 pa |
| If age 50 or over1 |
$50,000 pa |
Note: If you turn 50 during the financial year, the higher cap will apply to you.
If the total amount of your concessional contributions for the 2009/10 financial year falls under the current concessional cap, then your contributions will only be taxed at 15%. However, if your concessional contributions exceed the cap then any excess contributions will be taxed at 46.5%.
What type of contributions count towards my concessional cap?
The following types of contributions WILL COUNT towards your concessional cap:
- Employer contributions (including the 9% compulsory employer contributions also known as ‘Super Guarantee’ contributions)
- Salary sacrifice contributions
- Personal contributions claimed as a tax deduction (a type of contribution mainly used by self employed people).
The following types of contributions WILL NOT COUNT towards your concessional cap:
- After-tax personal contributions
- Government co-contributions
- Spouse contributions
- Child contributions
- Personal contributions for which a tax deduction is not claimed.
Please note that some of these contributions types may count towards your non concessional cap.
What happens if I exceed my cap?
Any excess contributions will be taxed an additional 31.5%, which means the total tax on your excess contribution will be 46.5%. Additionally, the excess contribution will be classed as a non-concessional (after-tax) contribution, and will count towards your non-concessional cap. The non-concessional cap has not changed for the 2009/10 financial year – the cap is $150,000pa, or if you are aged under 65 in the financial year, it is $450,000 over three years.
What does this mean for me?
If your current super contribution arrangements mean you may exceed your new concessional cap, you might want to consider making smaller contributions, or spreading contributions out over a number of financial years. This can help to ensure you don’t pay any unnecessary excess contributions tax, while still benefitting from super’s generous tax concessions.
We recommend that you discuss your personal situation with your financial adviser or tax agent. They can provide you with detailed information and help you to work out how to continue to meet your retirement goals.
New concessional caps in practice
Over 50
John is 54 and for the 2009/10 financial year he is planning for a total of $40,000 to be contributed to his super through employer contributions including salary sacrifice arrangements. Because John is over 50, his new concessional cap is $50,000pa. He will not exceed this cap and therefore will not incur excess contributions tax.
Under 50
Sue is 47 and is planning to contribute $10,000 to her super through employer contributions, and an additional $25,000 through salary sacrificing. This means she will contribute a total of $35,000 to her super in 2009/10. However, because Sue is under age 50, her concessional cap is $25,000pa. Her concessional contributions will exceed her cap by $10,000, which means she will be charged excess contributions tax of $3,150 (31.5% on the $10,000 she exceeded her cap). This additional $10,000 will also count towards her non-concessional cap. |
1The concessional cap for individuals aged 50 years or over on the last day of the financial year is known as a ‘transitional cap’ and will only be in place until 30 June 2012.
This information is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 has of the relevant Australian laws as at 29 July 2009. As these laws are subject to change you should refer to our website at colonialfirststate.com.au or talk to a professional adviser for the most up-to-date information. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Colonial First State or any other member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This is not financial product advice and does not take into account any individual’s objectives, financial situation or needs. Any examples are for illustrative purposes only and actual risks and benefits will vary depending on each investor’s individual circumstances.