When it comes to building and maintaining wealth, super is widely considered to be one of the most tax-effective investment structures available. This is particularly evident when considering the tax treatment of income and capital gains from assets held inside super, both in the accumulation and retirement phases.
Therefore, in terms of building an appropriate super nest egg, it’s important to understand the factors that can have an impact on your super balance come retirement. One of these factors is super contributions.
Super contributions
Overview
In terms of super contributions, it’s important to understand that there are two main types:
With the above in mind, it’s also important to note that restrictions limit the amount that can be contributed to super, referred to as the contribution cap limits. As it stands, for the 2020-21 financial year:
Non-concessional contributions cap and the bring-forward rule |
|
Total super balance at 30 June 2020 |
Non-concessional contributions cap |
$1.6 million + |
$0 |
$1.5 million < $1.6 million |
$100,000 |
$1.4 million < $1.5 million |
$200,000 |
< $1.4 million |
$300,000 |
Indexation of the contributions cap limits
When considering the contributions cap limits mentioned above, it’s important to note that the annual concessional contributions cap is indexed annually with Average Weekly Ordinary Time Earnings (AWOTE) and rounded down to the nearest $2,500. Further, since the non-concessional contributions cap is 4 x the concessional contributions cap, indexation of the concessional contributions cap by $2,500 would increase the non-concessional contributions cap by $10,000.
Importantly, with the recent announcement of the AWOTE figure for the December 2020 quarter, the annual concessional contributions cap is set to be indexed on 1 July 2021, which in turn will increase the annual non-concessional contributions cap. As such, for the 2021-20 financial year:
Indexation of the general transfer balance cap
It’s important to consider the relationship between the contribution caps and the general transfer balance cap (TBC), which will both be increased by indexation on 1 July 2021.
From 1 July 2021, the general transfer balance cap is set to increase from $1.6 million to $1.7 million.
For example, when considering the non-concessional contributions cap and the bring-forward rule, if you have a total super balance of $1.7 million or more on 30 June 2021, you will have a non-concessional cap of nil. For further information on this, please see the below table.
Non-concessional contributions cap and the bring-forward rule |
|
Total super balance at 30 June 2021 |
Non-concessional contributions cap |
$1.7 million + |
$0 |
$1.59 million < $1.7 million |
$110,000 |
$1.48 million < $1.59 million |
$220,000 |
< $1.48 million |
$330,000 |
Please note:
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