New concessional Superannuation contributions cap of $25,000 applies from 1 July 2012
As you are aware, there are limits (caps) on the amount that can be contributed into super each income year. If the amount contributed is more than the cap for the year, you usually have to pay extra tax called excess contributions tax (`ECT') on the excess contributions.
The amount of ECT that you are generally liable to pay if you exceed a contributions cap depends on whether the contributions are 'concessional' or 'non-concessional' contributions. Generally, any excess concessional contributions are taxed at 31.5% (on top of the 15% tax the fund generally pays), and any excess non-concessional contributions are taxed at 46.5%.
This letter concerns a recent change to the concessional contributions cap that you need to be aware of. Concessional contributions are generally those contributions that your employer makes for you (such as compulsory amounts payable under the Superannuation Guarantee ('SG') rules and any salary sacrificed contributions), and contributions that you make for which you can claim a tax deduction (such as where you are self-employed).
Since 1 July 2009, the concessional contributions cap has been set at $25,000 per annum for individuals who are under 50 years of age. As an exception, a temporary (transitional) cap of $50,000 has applied to individuals aged 50 or over to allow them to boost their super savings as they neared retirement. However, the transitional cap expired on 30 June 2012.
This means that, from 1 July 2012, the $25,000 concessional contributions cap will apply to all individuals regardless of their age. Therefore, if you were at least 50 years of age on 30 June 2012, you need to be aware of the following:
(a) From 1 July 2012, your concessional contributions cap has effectively been halved from $50,000 to $25,000 — that is, the amount that you and your employer can contribute to super to boost your retirement savings is now half what it was before 1 July 2012;
(b) Any salary sacrifice agreements you had in place with your employer before 1 July 2012 to pay additional amounts into super on your behalf should be reviewed and adjusted to reflect the reduced concessional cap of $25,000 that applies from 1 July 2012; and
(c) Be aware that if you work for more than one employer at any time from 1 July 2012, you may have to pay ECT if the total of the compulsory SG contributions made by all your employers exceeds the now reduced cap of $25,000.
You may be aware that the Government previously announced it would effectively extend the $50,000 concessional contributions cap for individuals aged 50 or more beyond 30 June 2012, but only for those whose total superannuation savings are less than $500,000. However, the government has since announced that it will defer the start date of this proposal to 1 July 2014, but has not yet released any legislation to enact this measure. We recommend that you contact our office to discuss this matter if you are likely to be affected by the above change.