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Generally, your super savings will build up over the course of your working life as money from your employment income is put into super by yourself, or by your employer under the super guarantee (SG), if you’re eligible.

You can make additional voluntary contributions to your super on top of this if you choose to. However, there are limits on the amount you can contribute each year and there are separate caps, depending on the types of contributions you may choose to make. 

Now is a great time to start planning your super contribution strategy for the 2022 Financial Year. Below are the different types of super contributions and limits for how much you can contribute.

What types of super contributions can I make?

Super contributions typically fall into two categories being concessional contributions and non-concessional contributions.

1. Concessional contributions include-

• Compulsory SG contributions, which are the before-tax contributions your employer is required to make into your super fund under the super guarantee, if you’re eligible.

• Salary sacrifice contributions, which are additional contributions you can get your employer to make into your super fund out of your before-tax income, if you choose to.

• Tax-deductible contributions, which are voluntary contributions you can make (such as when you transfer funds from your bank account into your super) that you then claim a tax deduction. These can be made by self-employed people and employees, and in some cases by those who aren’t working or who have retired. 

Note, concessional contributions are usually taxed at 15% in your super fund (or 30% if your total income exceeds $250,000), which for most people, means you’ll typically pay less tax on super contributions than what you do on your income.

2. Non-concessional contributions include

• Personal contributions, which you can also make by transferring funds from your bank account into super, but which you can’t claim a tax deduction. Some people may choose to make non-concessional contributions when they’ve reached their yearly concessional contribution cap, following an inheritance or sale of a large asset, or to receive a government co-contribution.

What super contribution caps apply?

If you’re making contributions to your super, there are limits on the amount of concessional and non-concessional contributions you can make each year. See below how much you can put in annually. 

* This broadly applies to people whose total super balance was less than $500,000 on 30 June of the previous financial year. 

** How much you can make as a non-concessional contribution depends on your total super balance as at 30 June of the previous financial year. 

Other rules regarding super cap

• If you exceed super contribution caps, additional tax and penalties may apply.
  
• If you have super assets of $1.7 million or more as at 30 June of the previous financial year, you can’t make additional non-concessional contributions to your super, or you may be penalised.
  
• If you’re 67 or over when a voluntary super contribution is made, you’ll need to have met (or be exempt from) the work test.
  
• If you’re 65 or over, you may be able to make a voluntary downsizer contribution to your super of up to $300,000, using the proceeds from the sale of your main residence, regardless of your work status, super balance, or restrictions that otherwise apply (more on this below).

Where do potential super benefits exist?

Putting money into super and claiming it as a tax deduction may be of particular benefit if you receive some extra income that you’d otherwise pay tax on at your personal income tax rate (as this is often higher).

Similarly, if you’ve sold an asset that you have to pay capital gains tax on, you may decide to contribute some or all of that money into super so that you can claim it as a tax deduction. This could reduce or even eliminate the capital gains tax that’s owing altogether. Keep in mind, you may not be able to access money you put into super for some time.

Last (but definitely not least), people aged 65 or over can make a voluntary contribution to their super of up to $300,000 using the proceeds from the sale of their home (if it’s their main residence) – regardless of their work status, super balance, or contributions history.

How can WLM Financial Services help

As you can see, there are many benefits to adding funds to superannuation and a lot of restrictions. A financial adviser can give you a clear understanding of where you stand and how you can manage your cash flow, super and investments to meet your goals.

About WLM Financial

WLM Financial offers a single-team approach to help you across your entire financial life: business and personal, accounting and financial planning. Find out more about our range of Accounting Services and Financial Planning Services. Or book a meeting for a friendly follow-up to discuss your financial needs.