21 May 2020
By Colin Lewis, Head of Technical Services, Fitzpatricks Private Wealth
How much can I contribute before June 30?
Leading up to June 30, many people wish to know how much they can contribute to superannuation to reduce tax and/or to bolster their retirement nest egg.
Should be simple … right?
Concessional (pre-tax) contributions
Making a concessional contribution (CC) – a personal contribution for which you claim a tax deduction and/or salary sacrifice contribution – is relatively straightforward. You need to be mindful that the total amount which can be contributed by you and/or your employer is generally $25,000 before additional tax applies.
The amount you have in the super system – your total superannuation balance (TSB) – has nothing to do with this type of contribution.
If you choose to make a personal deductible contribution, you must provide your super fund with a notice of intent (NOI) to claim a tax deduction for the contribution and have it acknowledged by the fund trustee – usually done around tax time. Be very careful not to touch the contribution, e.g. roll it over to another fund, withdraw it, or start an income stream, before first lodging your NOI.
Catch-up concessional contributions
If you didn’t utilise the full $25,000 cap in 2018/19, then the unused amount may be contributed this financial year provided your TSB at 30 June 2019 was less than $500,000.
Say your CCs in 2018/19 were $20,000, then you carried forward $5,000. This financial year, you or your employer can make CCs up to $30,000 provided your TSB at 30 June 2019 was less than $500,000. Alternatively, you can carry the $5,000 forward up until 2023/24 provided that in the year you wish to apply it, your TSB is less than $500,000 at the previous June 30.
Non-concessional (after-tax) contributions
Making a non-concessional contribution (NCC) is more complicated.
If you are trying to work out the maximum you can contribute before June 30 then you need to follow these steps – ideally, you should seek professional advice so as not to get it wrong.
- Know your total superannuation balance
First, you need to know the total amount you had in the superannuation system – your TSB – at 30 June 2019, as this dictates your eligibility to make an NCC.
If it was $1.6 million or more, then you cannot contribute. That’s right – zip – as an NCC!
It’s worth noting that certain after-tax contributions – downsizer contributions and CGT cap contributions – are not treated as NCCs and can be made regardless of your TSB.
You may be eligible to make a downsizer contribution of up to $300,000 if you sell a home that you or your spouse owned for a continuous period of at least 10 years and you are aged 65 or more.
A CGT cap contribution of up to $1.515 million arises from the proceeds of sale of your business or other active business assets.
- Determine if you previously triggered the bring-forward rule
If your TSB was less than $1.6 million at 30 June 2019, have a look at the NCCs you made in the 2017/18 and 2018/19 financial years as you need to know whether you triggered the bring-forward arrangements back then.
You would have triggered the bring-forward provisions if you contributed more than $100,000 in either of those financial years.
Ensure you count any excess CCs not withdrawn from your super fund as NCCs.
Say you made CCs of $27,000 in 2017/18 and after receiving an excess concessional contributions determination from the ATO, did not elect to withdraw 85% of the excess, i.e. $1,700 (85% of $2,000), then $2,000 would have counted towards your NCCs cap. So, if you’d made an after-tax contribution of $100,000, then the total amount counted under the NCCs cap would have been $102,000, triggering – maybe unknowingly – the bring-forward arrangements.
Also, be careful if you find you contributed more than $100,000 back then, that it was not the tail end of a previous bring-forward period.
If you discover that you triggered the bring-forward rule in 2017/18 or 2018/19, then you need to know the bring-forward arrangement under which you contributed – was it $300,000 over 3 years or $200,000 over 2 years?
The former applies if your TSB was less than $1.4 million at the 30 June just prior to the year you triggered the bring-forward rule, so, the maximum you can contribute this financial year is any remaining balance to $300,000.
The later applies if you had $1.4 million to less than $1.5 million and the maximum you can contribute now is any remaining balance to $200,000.
- Bring-forward rule not triggered in past two years
If you didn’t trigger the bring-forward arrangements in either 2017/18 or 2018/19 and the total amount you had in super – your TSB – was less than $1.4 million at 30 June 2019, then you can contribute up to $300,000.
If you had $1.4 million to less than $1.5 million, then you can contribute up to $200,000, otherwise the maximum you can put in is only $100,000.
Aged 65 or more
Generally, if you are aged 65 to 74 you must have met the ‘work test’ – 40 hours of gainful employment in 30 consecutive days – before you can contribute concessional, non-concessional and CGT cap contributions.
If you won’t meet the work test in 2019/20 and wish to make a voluntary super contribution under the new work test exemption, you must have satisfied the work test in 2018/19 and had a TSB at 30 June 2019 of less than $300,000.
If you’re aged 74, then you only have up until 28 days after the end of the month in which you turn 75 for the trustee to receive your contribution.
Note that the work test and age restriction don’t apply to downsizer contributions.
So, if you’ve met the work test or work test exemption and wish to make an NCC before June 30, then steps 1 and 2 still apply.
However, step 3 differs in that if you haven’t triggered the bring-forward rule in either 2017/18 or 2018/19 and you were aged 65 to 74 at 1 July 2019, then the maximum you can contribute is $100,000.
And this is simple super!