The concessional contributions cap is an important consideration when it comes to your superannuation strategy and saving for your retirement.
The cap is a limit to how much money you can put into your superannuation as concessional contributions before it is taxed at a higher rate.
Concessional contributions are the most common type of contributions, which include the compulsory super contributions made by your employer.
When it comes to growing your retirement savings, it helps to understand how concessional contributions and the cap work.
Concessional contributions in detail
Concessional contributions are paid into your superannuation fund before tax in a number of different ways.
They may be employer contributions such as compulsory employer contributions and salary sacrificed payments.
Concessional contributions are also made up of contributions that you can make as an income tax deduction, notional taxed contributions for defined benefit fund members, and unfunded defined benefit contributions.
Keep in mind that once concessional contributions are paid into your super fund, they are taxed at 15 per cent.
How to use the concessional contributions cap
The concessional contributions cap for the 2022-23 financial year is $27,500 for all ages.
The concessional contribution cap has changed over the years, so it’s important to check what the cap is each year.
For example, the concessional cap for anyone aged under 49 was $35,000 for anyone over 49; and for the 2020-21 and 2021-22 financial years it was $25,000 for all ages.
If you make concessional contributions that exceed the cap, you may have to pay extra tax.
Your superannuation fund needs to receive all your contributions by June 30 of that financial year, and remember that your contributions only count once they are received by your fund.
You can learn more about age-related contribution rules here, including why it is worthwhile making the most of the $27,500 limit before turning 75.
Catch-up concessional contributions
There may be times when your concessional contributions don’t reach the cap for the financial year.
When your concessional contributions are less than the annual cap, you may be able to make carry forward or catch-up concessional contributions in subsequent financial years.
You can carry forward unused concessional contribution amounts dating from July 1, 2018.
The first year that you can take advantage of the catch-up concessional contributions is the 2019-20 financial year, although you can only use these if your total superannuation balance was less than $500,000 at the end of June of the previous year.
Keep in mind that any unused concessional contribution amounts are available for up to five years.
If you do have unused carry forward amounts, you can take advantage of the carry forward provisions by making salary sacrificed or personal deductible contributions.
Speak to our superannuation experts
There are many factors to consider when it comes to growing your superannuation and saving for your retirement.
You make have questions like: How can you make the most of your concessional contributions? What’s the best way to optimise your superannuation? Should you save through an established superannuation fund or create your own self-managed superannuation fund?
LDB’s team of superannuation specialists can provide tailored advice to help you reach your superannuation goals and work towards a comfortable retirement.
If you would like us to discuss your concession contributions in greater detail or assist with superannuation advice, give us a call on (03) 9875 2900 or fill in the form below.
Editor’s note: This article was originally published on August 28, 2020 but has since been updated to include new information.
