You may have heard that the amount you can contribute to superannuation will change for 2014/15. In the new financial year, you
will be able to make more before-tax and after-tax contributions to super. This could mean that you can accumulate
faster towards your retirement savings goals.
Before-tax contributions include superannuation guarantee
(What your employer pays you as SGC or if you are a member of a defined benefit scheme it is generally the productivity contributions) or salary sacrifice contributions you choose to make as well as any personal contributions for which a tax deduction is claimed (for example, if you are self-employed).
These types of contributions are called ‘concessional’ because the amount you contribute (up to your annual concessional cap) is taxed at the concessional rate of just 15 per cent compared to your marginal tax rate (except if you earn over $300,000 per annum*).
After-tax contributions include personal contributions to super where you don’t claim a tax deduction. These contributions are made from income from which you have already paid tax at your marginal tax rate and counts towards your ‘Nonconcessional’
The Better Super legislation which was launched back in 2007 aimed to simplify the super system and encourage a greater level of engagement between Australians and their super. Professionally we are still getting plenty of questions around superannuation so the engagement is happening however we are still not sure it is really simplier! However as a result, an annual cap on super contributions was introduced. Initially, this was $50,000 of ‘concessional contribution’ per person per year, but in the 2009/10 tax year, in a move to protect revenue, the Government halved this cap to $25,000. As would be expected, the effects were far-reaching, and very unpopular for those considering a salary sacrifice strategy in the lead up to retirement.
Hefty penalties were applied to those who exceeded both caps — up to 93 per cent on excess contributions. Since then, however, individuals and the industry have lobbied the Government to increase the cap, which has paid off, with recent legislation passed to increase the caps in certain circumstances. For the 2014/15 financial year:
• If you are age 50 or over at any time in 2014/15 financial year, you will be eligible for a higher ‘concessional contribution’ cap of $35,000. This cap will not be indexed in future years.
• For everyone else, the standard ‘concessional contribution’ cap will be indexed to $30,000 (up from $25,000), in line with average weekly ordinary times earnings in amounts of $5,000 and, over time, will eventually catch up with the higher $35,000 cap.
• The ‘non-concessional’ contribution cap is set at six times the standard concessional contribution cap and will be $180,000 for the new financial year. If you are aged 64 or younger at any time in the 2014/15 financial year, you may be eligible to choose to bring forward the next two years of your ‘nonconcessional’ contributions to the first year in 2014/15.
For those approaching retirement, these new caps gives those who are eligible, the opportunity to build their retirement nest egg and reduce the amount of tax paid. We can assist you when you’re thinking about contributing more into your retirement savings.
If you have any questions around your super strategies for the current income year contact our office and make 2014/2015 a Super Financial Year for your wealth creation!
Scott Malcolm (email@example.com) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.