There are many things we worry about when it comes to superannuation, like not paying enough into our super funds, whether or not we have the best super fund, and all these other superannuation mistakes we could be making. But here’s a rather unexpected worry to add to the list; In at #4,573 is the fact that you could be paying too much into your super fund.
You see, there’s such thing as a super ‘cap’, or a maximum amount you can contribute to your superannuation each financial year. If you contribute above the cap, you may have to pay extra tax. The cap amount and the extra tax you need to pay depend on whether the contributions are concessional (before tax) or non-concessional (after tax).
Confused? We don’t blame you. Let us explain…
What are the limits of the super cap?
There are limits to the amount of money you can put into super each financial year before you pay extra tax – these are called super concessional contribution caps. A concessional contribution includes the super guarantee (SG) and any amounts you salary sacrifice (before-tax voluntary contributions from your salary) into super.
Concessional contributions generally attract a tax of 15% when contributed, or 30% in the case of those with taxable income and contributions of over $250,000 a year.
So what happens if you pay too much super?
You can contribute more than the cap, but you should be aware of the amount of tax you may have to pay on the excess amounts.
If you choose to go over the concessional cap you may have to pay your marginal tax rate on the excess amount rather than 15%. An additional charge is also made which reflects a notional interest charge for tax being paid later than was the case for other income relating to the financial year concerned.
It’s best to seek advice from a qualified financial adviser before exceeding either your concessional or non-concessional cap.
Can you withdraw your excess contributions?
You can elect to withdraw up to 85% or your excess concessional contributions from your super fund to help to pay your income tax assessment when you have excess contributions.
How do I avoid going over the super caps?
If you were taking advantage of what used to be higher concessional caps, make sure you have correctly adjusted your contribution level in 2017-18 to avoid paying extra tax. If you are salary sacrificing into super you may need to adjust your salary sacrifice agreement with your employer.
Contributions count in the year they are received by the fund, not in the period in which they accrued. Therefore, you should ask your employer when the last contribution to your fund for the financial year will be so that you have all the right information.
Don’t leave it until the last minute of a financial year to make contributions. Allow sufficient time for payments to be processed by your fund. You should check when your contribution is likely to be received by your fund. If using a third party, such as a payroll house, to make the contributions, it needs to ensure the contribution arrives at the fund before the end of the year.
If in doubt, you should check with your fund about when your contributions have been received.
You may also like to speak to your super fund about whether you should adjust your intended contributions in the next year to avoid making excess contributions.
For more information about contributing to super, visit www.ato.gov.au/supercaps.
