The rules around Superannuation contribution change almost every year, so it’s important that you know what these changes mean.
Required age for voluntary superannuation
From 1 July 2020, the required age for voluntary contributions rose from 65 to 67. The good news here is that you now have more time to benefit from voluntary contribution strategies.
Cap on superannuation contributions for the year ending 2021
There is a cap of $25,000 per person on contributions to super during the 2020-21 financial year. Any excess over this concessional contribution (CC) cap is taxed at your marginal tax rate. CCs can include:
- Superannuation guarantee contributions (SGCs)
- Employer voluntary / extra contributions like salary sacrificing
- Member taxable contributions claimed as a deduction in you personal income tax return.
The CC cap will, in most cases, exceed employer contributions in 2020-21. If this is the case, then you could consider adding personal taxable contributions to get you up to the $25,000 limit.
Carry forward provisions
You can carry forward CCs if your total superannuation balance is less than $500,000. Unused contributions can be carried forward for five years. While this arrangement came into effect a couple of years ago, it is important to consider if you can use this carry forward option to grow your contributions.
Superannuation work test
The work test applies once you turn 67 and means that you must be able to show that you have been gainfully employed for 40 hours or more in any 30-day period in a financial year.
Splitting of contributions
You can split CCs that are made your on behalf to a spouse if certain requirements can be met.
The main reasons to split contributions are to:
- Assist with the limit of only being allowed to have $1.6 million to start an account-based pension with
- Assist with ability to make non-concessional contributions (NCC) given the cap limit also of $1.6 million
- Assist with the ability to use the carry forward provisions given the member balance cap of $500,000
- Address age differences between spouses and the ability to access benefits at an earlier date
- Access Centrelink advantages by minimising a member’s account
- Allow a member to have sufficient superannuation to be able to pay life insurance.
A spouse rebate, up to a maximum of $540, can be claimed for superannuation contributions for the year ending 30 June 2021.
If your spouse earns less than $37,000 per year and you contribute $3,000 into superannuation for them, you can claim a tax rebate of $540.
Tax-free contributions for 2020-21
Non-concessional contributions (NCC) are those made into a super fund from after tax income. There is a cap for NCCs of $100,000 for the 2020-21 year.
To be able to make an NCC, a member must meet the work test, as described above.
NCCs can be made on a once-off basis in the financial year after you have ceased employment if your TSB is less than $300,000 as of 30 June in the previous financial year. You also need to be under 75.
If you have any questions on how superannuation can affect your tax and vice versa, then give us a call.