How Well Do You Know Super Caps?
Disclaimer:
The information in this article contains general advice and is provided by Hood Sweeney Securities Pty Ltd AFSL No.220897. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. Please refer to our FSG (available at https://www.hoodsweeney.com.au/services/financial-planning/how-we-service-our-clients/financial-services-guide) for contact information and information about remuneration and associations with product issuers. All examples are provided for illustrative purposes only.
Senior Financial Planner Daman Arthur* gives us a 101 on superannuation caps, or the limits to your annual superannuation contributions. These can have a significant impact on your financial position but unravelling the full picture can benefit from professional guidance, says Daman.
The most common caps associated with super are concessional, non-concessional, untaxed lifetime, and transfer balance caps.
Surely once we know these caps, we can easily determine the levels of contributions we could make in a financial year. Not so. In practice each of these caps is determined in each specific financial year at an individual level and will probably be different again next financial year. That’s before we even consider indexation of caps and any changes to legislation.
We must consider an individual’s Total Super Balance (TSB), their age, level of taxable income, if they are working, contributions made over the last 5 years, and intentions for the next 3 years. That’s an 8-year window we need to think about each year before contributing to super.
Take the example of concessional contributions, the most common contributions made in Australia. These contributions include mandated employer (SGC), salary sacrifice and personal concessional (deductible) contributions. Besides compulsory SGC, these contributions are popular because they can allow us to save for retirement in a tax effective manner.
Since 1 July 2018, if our Total Super Balance is under $500,000 at the start of the financial year, we have been able to carry forward up to 5 years of unused concessional contributions in the current year.
Let’s look at the following example: an employee, Jane, earning $100,000 dollars. Her concessional contributions are listed in the table below:
Financial Year Ending |
Concessional Cap |
SGC (%) |
Employer Contributions |
Unused Contributions |
|---|---|---|---|---|
2019 |
$25,000 |
9.5 |
$9,500 |
$15,500 |
2020 |
$25,000 |
9.5 |
$9,500 |
$15,500 |
2021 |
$25,000 |
9.5 |
$9,500 |
$15,500 |
2022 |
$27,500 |
10.0 |
$10,000 |
$17,500 |
2023 |
$27,500 |
10.5 |
$10,500 |
$17,000 |
2024 |
$27,500 |
11.0 |
$11,000 |
$16,500 |
2025 |
$30,000 |
11.5 |
$11,500 |
$18,500 |
Time for a quick quiz:
How much could Jane contribute to super as a lump sum concessional contribution in the 2025 financial year?
If you said $100,500, congratulations you have determined one of the caps.
Should Jane contribute to super and claim a tax deduction, and if so, how much?
It depends…
What I want to highlight is the complexities associated with contributing to super. The variability of these caps, combined with an individual’s goals and objectives, creates a wide range of possible outcomes and potential strategy opportunities. There could also be unintended consequences of getting it wrong, such as breaching contribution caps, or making the wrong type of contributions. The rules are specific and inflexible when it comes to mistakes.
The DIY approach might get you part way to an answer, however, optimising all of the various caps every year can have a significant impact to your financial position.
*Daman Arthur is a Senior Financial Planner
Strategy & Investments
Representative of Hood Sweeney Securities AFS Licence No. 220897