Increased Contribution Caps
Recent announcements have confirmed that the annual concessional contribution (CC) and non-concessional contribution (NCC) caps will increase from 1 July 2021. These changes are highlighted in the table below:
| Cap | 2020/21 and earlier | From 1 July 2021 |
|---|---|---|
| Concessional | $25,000 | $27,500 |
| Non-concessional | $100,000 | $110,000 |
As a refresher, contributions are broken up into 2 distinct types being:
- Concessional Contributions – These are the contributions that receive some form of tax concession on the contribution. They include the compulsory contributions from your employer (SG), any salary sacrifice that you do and any extra contributions that you make that allow you to claim a tax deduction on your income tax at the end of the year.
- Non-Concessional Contributions – These are the after-tax contributions that you put in and would typically be the contribution of cash savings, proceeds from the sale of assets or inheritances and get no tax concessions at the point of contribution (hence the name Non-Concessional).
As noted above, each of these contributions have separate limits each financial year.
While Non-Concessional Contributions are frequently used as part of our strategy with clients to top up their super in the lead up to retirement, the one that most working clients focus on each year and target is the Concessional Contribution limit.
Concessional Contributions give you a tax saving each year, either in your regular pay or in your end of year tax return and hence are an important area for all clients to focus on in reducing tax and maximising your wealth. Many clients that we deal with attempt to maximise their contributions towards the current $25,000 limit each year.
On the back of these changes, all clients have an additional amount of $2,500 that can be added to their super each year through this tax effective mechanism.
Further to these new tax limits, many workers have access to unused concessional contributions that have carried forward from previous years.
Carry Forward Concessional Contributions
Since 1 July 2018, legislation has been in place which allows certain individuals to carry forward any unused concessional contributions for up to 5 years. To be eligible for this strategy, you must:
- Have concessional contributions under the $25,000 limit since the 2018/19 financial year;
- Have a total super balance (across all super accounts) that is under $500,000 as at the 30 June;
Once this is met, you have access to both the standard Concessional Contributions limit along with additional amounts from the unused portion of previous years.
As an example, Jim has made contributions to super (from his employer SG contributions and his own salary sacrifice) of the following amounts since 1 July 2018:
| Financial Year | Contribution | Unused Contribution |
|---|---|---|
| 2018/19 | $10,000 | $15,000 |
| 2019/20 | $15,000 | $10,000 |
| 2020/21 | $25,000 | Nil |
| Unused Total | $25,000 |
Assuming Jim’s superannuation balance at 30 June 2021 is below $500,0000, in the year starting from 1 July 2021, he will have the ability to put up to $52,500 into super as a concessional contribution. This amount is made up of his new $27,500 limit for 2021/22 along with the $25,000 in unused contributions outlined above.
By implementing these strategies, Jim would be saving thousands of dollars in tax with his contributions taxed at just 15% instead of at income tax rates at or above 34.5% for most workers.
All clients looking to get the best out of their super should be seeking to review their salary sacrifice and contribution strategies now. Your Stonehouse Adviser can assist in making the most of these opportunities and ensure that they are implementing the necessary amendments that these changes require.
If you have any queries relating to these recent changes or would like to see how these changes may be of benefit to you, please contact your Stonehouse Adviser for assistance.
Grant Enders – Financial Adviser
