“Dear Reader, please note; A One Accountants is not in the business of providing financial advice. We do not suggest and/or indicate in any manner or form that any content in this article is beneficial to your SMSF’s investment strategy. You should consult a qualified financial adviser regarding your personal circumstances. The below article is purely informative and general in nature.”
SMSF contributions are an excellent way of topping up your super throughout the years. Every dollar you put down into your SMSF contributions now could have a major impact to your final retirement balance and your lifestyle during retirement years.
The government provides generous tax incentives for your superfund contributions to encourage, incentivize and motivate you to contribute to the SMSF. Your contributions now, can help reduce the pressure on government benefits when you retire. This is why super contributions is one of the most effective strategies to save for retirement.
The amount you can contribute, however, is limited. These limits are referred to as contribution caps, and there are two different types of contributions based on the tax effects. Both these types of contributions have their own caps.
- Concessional contributions cap – the amount you can contribute before taxes, such as through employer contributions, salary sacrifice and personal before tax contributions.
- Non-concessional contributions cap — the amount you can contribute after taxes, including personal contributions made with money that has already been taxed.
You may be required to pay additional tax if you exceed your contribution caps for the financial year. This article describes both types of contribution caps and the rules around them. The SMSF contribution caps and the carry back and carry forward options available to both these caps provide enormous flexibility with regards to how and when you can make these contributions.
Concessional contributions cap: (Taxed at 15%)
Concessional contributions are contributions made from pre-tax income to your SMSF superannuation fund. Examples are employer contributions, salary sacrificed contributions and tax-deductible personal contributions.
All persons, regardless of age, are subject to a concessional contributions cap of $27,500 per year (up from $25,000 for the financial year 2021/22).
These contributions are taxed at 15 percent when they enter your super. This is usually lower than the marginal rate for the majority of the working population.
Any contributions made over and above the cap will be taxed at your marginal tax rate, with a 15% tax offset to account for the contributions tax previously paid on the excess contributions.
Carry-forward unused SMSF contribution caps
Each financial year (since 2018/19), you may be eligible to ‘carry forward’ any unused SMSF contributions within your cap over to the next financial year – as long as your total at the end of the preceding financial year super balance is less than $500,000. These funds will be carried forward for a period of five years.
If there’s a possibility you’ll go over your limit during the ffinancial year, you can talk to your payroll department or contact your financial adviser or the ATO.
Non-concessional contributions cap
In an SMSF, Non-concessional contributions are contributions made with money that has already been taxed. This is why when these funds enter your super, they are not taxed.
Non-concessional contributions are limited to $110,000 per year (up from $100,000 for the 2021/22 financial year). Non-concessional contributions are not allowed for individuals with a super balance of $1.7 million or more (the general transfer balance threshold has been $1.6 million since 2017)., and on 1 July 2021 it was increased to $1.7 million).
Your excess contributions may be taxed at the maximum rate of 47 percent if you exceed the non-concessional contributions limit.
If you are under the age of 67, you can ‘bring forward’ the non-concessional contributions caps for the next two years. Essentially, you have the option to contribute up to $330,000. The cash can be contributed in one single sum or spread over three years, however there may be qualifying requirements. To be clear, the prior bring forward maximum of $300,000 will still apply if an individual engages into a bring forward arrangement before 1 July 2021.
Tracking your caps
We recommend that you check that you are below your SMSF contribution caps during the financial year. This will assist you in avoiding paying additional taxes and fines. Similarly, if you are still considering making extra contributions, knowing how much you have under your SMSF cap can influence your decision.