There are no limits as to how much you can contribute to superannuation. However, if you exceed the relevant annual limit, you will have to pay additional tax. This limit is called “contributions cap”. There are concessional contributions cap and non-concessional contributions cap. The concessional contribution is taxed at 15% and this tax called contributions tax. Any contribution above the relevant cap is taxed at a further 31.5%. This additional tax is called excess contributions tax.
Concessional contributions – for the 2012/13 financial year, the concessional contributions cap is $25,000 pa. This is the maximum amount you or your employer can contribute for you and pay only 15% contributions tax. If you exceed the cap, the amount over and above $25,000 will be taxed at a further 31.5%. If you make the mistake by paying too much into superannuation, you will effectively be paying 46.5% tax. Concessional contributions are employer contributions (SG & salary sacrifice) and personal contributions that a tax deduction has been claimed on it (by self-employed people).
Non-concessional contributions – these are personal after-tax contributions and the cap is $150,000 pa. These contributions are not subject to tax. However, if you exceed the cap, you’ll pay the excess contributions tax of 46.5%.
Bring forward provision – this applies to non-concessional contributions only. What this provision allows you to do is if you’re under 65, you can exercise the bring-forward provision by contributing to superannuation $450,000 over a 3 year period without breaching the cap. For example, you can put in $450,000 this year but nothing over the next 2 years.
It is important to note that the amount in excess of concessional contributions cap is counted towards the non-concessional contributions cap. If you exceed both caps, you can pay up to 93% in tax.
Your employer contributes $30,000 concessional contributions to your superannuation fund on your behalf and you use the bring-forward provision rule and also contribute $450,000 of non-concessional contributions. Looking at this scenario, it would appear that you’ve only gone over the concessional contributions cap by $5,000 but not the non-concessional contributions cap as you exercise the bring-forward provision. However, as the excess concessional contributions are counted towards the non-concessional contributions cap, you effectively put in $455,000, which makes you go over the non-concessional cap by $5,000. In this example, you’d have paid 46.5% tax on the $5,000 as the concessional contribution and 46.5% tax as the non-concessional contribution, making a total of 93% tax.
The government has proposed that from 1 July 2014 (2014/15 financial year), the concessional contributions cap will be increased to $50,000 for anyone who has a total superannuation account balance under $500,000 and is over age 50. This is just a proposal; it has not been passed by the parliament.
How contributions tax and excess contributions tax are collected by the ATO
Superannuation funds are responsible for collecting the contributions tax (15%) for the ATO when they receive concessional contributions. As soon as the contributions are allocated to your account, tax is immediately deducted.
Unlike the contributions tax, excess contributions tax (31.5%) is not collected by superannuation funds. Superannuation funds are required to report total contributions to the ATO by 31 October each year. When the ATO receives contribution information from your funds and determines that you have exceeded the relevant contributions cap, they will send excess contribution assessment to notify that you have breached the cap and collect the excess contributions tax. The ATO also issues a Release authority to you which authorises your superannuation fund to withdraw the money to pay the excess contributions tax. You must give the Release authority to your fund within 90 days of receipt and your fund has 30 days to process the payment which can either be paid to the ATO or to you. Concessional excess contributions tax can be paid using your own money or your superannuation money. However, you have no option with non-concessional excess contributions tax. It must be paid by withdrawing the money from superannuation.
No tax file number
If you do not quote your tax file number (TFN) to your superannuation fund, they will deduct a total of 46.5% tax from your concessional contributions for the ATO. Upon the contributions being allocated to your account, the usual 15% contributions tax is deducted and if by the end of the financial, your fund still has not received your TFN, they will deduct a further 31.5% from your account. This is known as a No-TFN tax. Superannuation funds cannot accept non-concessional contributions from a member who does not give their TFN to their superannuation fund.