Whether you qualify to make contributions, making them on time and in the right way is essential if you wish to add to your retirement savings. If you fail to meet just one of these requirements, you may have to withdraw what you have contributed and could end up with a tax penalty for not understanding the rules. Here are five essential things you need to know about contributing to super
A contribution to super needs to be made by 30 June in a financial year which means the fund must have received it by 30 June.
Cash contributions are made when the fund receives the payment, including amounts transferred electronically. However, there is one exception that applies to contributions made by cheque. If the trustee receives the cheque prior to 30 June, it can be counted as a contribution even if the cheque is not banked until early in the next financial year, but it must be banked as soon as possible by the trustees. An example would be a cheque given to the trustees of the fund over the weekend, which is banked until early the next working week. This is especially important if the end of the financial year occurs on a Saturday, Sunday or public holiday.
Most contributions made to super are in cash or by electronic transfers. However, it is possible to contribute by transferring an asset to the fund. There may be restrictions on the type of asset transferred to the fund, but publicly listed investments, business real estate and some related party investments are allowed.
If an asset is transferred to the fund, the contribution is considered to have been made when the fund becomes the asset's legal owner. An example would be the transfer of shares listed on the ASX or real estate. The transfer of shares to the fund is recognised as a contribution received by the fund when the contributor and the superannuation fund trustee have completed a fully completed off-market transfer form. In the case of real estate, the contribution is made when the settlement of the property is finalised.
Whether you qualify to make contributions to super depends on the type of contribution you are making. Contributions made by your employer for superannuation guarantee purposes can be made at any age. However, personal contributions, except for downsizer contributions, must be made until just after you have reached age 75 and may be limited by the total amount you have in super. For personal tax-deductible super contributions, you will need to meet a work test after you reach age 67.
Non-concessional contributions (non-deductible contributions) can be made to super up until 28 days after the month in which you reach 75 years of age. However, the total amount you have in super must be no more than $1.7 million on 30 June in the previous financial year. This threshold will be indexed to $1.9 million for total super balances as of 30 June 2023. The standard non-concessional contribution is $110,000.
Depending on the total amount you have accumulated in super on 30 June in the previous financial year, you may be able to bring forward up to two years’ standard non-concessional contributions. The bring-forward rules start from the year in which you contribute more than the standard non-concessional amount of $110,000.Depending on the total amount you have accumulated in super on 30 June in the previous financial year you may be able to bring forward up to two year’s standard non-concessional contributions. The bring forward rules starts from the year in which you contribute more than the standard non-concessional amount of $110,000.
For the 2021-22 financial year, if you have a total amount in super on 30 June 2021 which is between $1.48 million and $1.59 million, you can bring forward one year’s standard non-concessional contribution, which will allow you to contribute up to $220,000 over a fixed two year period. And if you have a total amount of less than $1.48 million, then you can bring forward up to two years’ standard non-concessional contribution, which will allow you to contribute up to $330,000 over a fixed three-year period. The total balance thresholds for the bring forward rule will increase for the 2023-24 financial year in line with the indexation of the total super balance from $1.7 million to $1.9 million.
Downsizer contributions have become a popular choice for many who have sold their main residence, which has been owned for at least ten years. The contribution of up to $300,000 or, if lesser, the amount received on sale is available to each member of a couple and must be made to super within 90 days after the sale has been completed. An election is required to be given to the fund prior to the downsizer contribution being made so that it is not confused with other types of contributions being made to the fund. Unlike other types of personal contributions, the downsizer contribution can be made at any age, is not counted against your contribution caps and is not restricted by the amount you have accumulated in super.
If you wish to claim a tax deduction for personal contributions (concessional contributions), once you reach age 67, you will need to meet a work test of 40 hours in 30 consecutive days in the financial year in which the contributions are made. There are no work tests applying to those under the age of 67.
The amount you can claim as a tax deduction is limited to a standard concessional contribution of $27,500. However, if the total superannuation balance on 30 June in the previous financial year is no more than $500,000, then you may be able to claim the unused concessional contributions under your cap since 1 July 2018. Don’t forget that when working out the amount, you can claim that any contributions made by your employer for a superannuation guarantee, industrial award or salary sacrifice also count against your concessional contribution cap.
To claim the tax deduction for personal contributions, you must make an election which is kept by the fund that includes the amount of the deduction. The election must be made at the earlier of lodging your tax return or by the end of the next financial year after the contribution was made.
The amount of the personal contribution you can claim as a tax deduction is limited so that it does not make a loss or increases a loss for tax purposes.
If you make personal contributions to super, remember some caps restrict whether you can contribute, caps that apply to the amount you can contribute and a limit on the maximum age at which the fund can accept personal contributions.
Staying within the caps means you can avoid paying any of the penalties that apply and having to withdraw any excess amounts from super.