RSM Australia

Superannuation: year-end contribution planning

Wealth Management Insights

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With the end of the financial year fast approaching, it is necessary to ensure that superannuation contributions are made before 30 June. Contributions to a fund are only counted towards the various contribution caps when they are received. That is, if the cash is not received in the fund by 30 June it will not be included as a contribution.

The budget announcements did not affect the concessional contribution limits for this financial year in that:

  • Individuals under 50 years of age, can contribute up to $30,000;
  • Individuals over 50 are able to contribute up to $35,000.

It is proposed that the cap will reduce for all individuals to $25,000 from 1 Jul 2017.

Non-concessional (or undeducted) contributions were affected by the budget announcement, in that each individual has a lifetime limit of $500,000.  All contributions from 1 July 2007 are counted to this limit.  As such, before making any contributions individuals should check their contribution histories to determine if they have the ability to make a contribution.  

Should an individual exceed either contribution limit, it is possible that the excess contribution will be taxed at the top margin rate of 49%.  There may be an option available to withdraw the excess amount from superannuation, which will be subject to the available cash flow in the superannuation fund.

If you are over 65 years of age, there are restrictions relating to being eligible to contribute. The main restriction requires an individual to pass the ‘work test’ and be gainfully employed for 40 hours in a 30 day period in each year to make contributions.

High income earners, with over $300,000 of personal taxable income are subject to 30% tax on their contributions rather than the normal rate of 15%.  In planning contributions before 30 June consideration should be given to the individuals personal income levels and the potential impact of this additional tax.  It is proposed that this threshold will be lowered to $250,000 from 1 July 2017.

Given the recent changes to the contribution caps and the significant penalties for exceeding the caps, individuals should carefully review contribution plans and speak with their advisor to confirm their eligibility.