Government announces contribution caps for the 2010/11 financial year

Kathleen Conroy, Partner, Brisbane
 
Following from the cut in limits to superannuation contributions announced in the 2008/09 Budget, the Federal Government has announced the superannuation contribution caps that will apply for the 2010/11 financial year. What are the new caps and what should be borne in mind when considering contributions to superannuation savings?
 
The Federal Government has announced the superannuation contribution caps for the 2010/11 financial year. The new caps, and some important points to bear in mind when making contributions to a superannuation fund, are set out below.
 
1. Concessional contributions:
 
Concessional (or ‘before tax') contributions are contributions to a superannuation fund that receive concessional taxation benefits. For the 2010/11 financial year, the caps are:
 
Age
Cap
Aged under 50 as at 30 June 2011
$25,000
Aged 50 or over on 30 June 2011
$50,000
When considering before tax contributions to superannuation, it is important to remember that:
 
(a) contributions that count towards the contributions cap include (but are not limited to):
 
the compulsory amount paid into the employee's fund by an employer;
 
amounts salary sacrificed into the fund by the employee;
(b) where an employee has more than one fund, the cap applies across the range of funds. There is not, that is, a separate cap for each fund maintained;
(c) the same rules apply for self managed funds and externally managed funds;
(d) the increased cap for those aged 50 and over will only continue until 30 June 2012;
(e) you can take advantage of the higher cap if you turn 50 at any time during the 2010/11 financial year;
(f)

provided you turn 50 in the 2011 financial year, you do not have to wait until your 50th birthday to exceed the $25,000 limit applicable to the ‘under 50s'.

2. Non-concessional contributions
 
Non-concessional (or ‘after tax') contributions to a superannuation fund are contributions that will not be taxed in the superannuation fund, and are not liable for tax in the hands of the contributing member. For the 2010/11 financial year, the caps are:
 
Age
Cap
Aged under 65
$150,000
Aged 65-75 on 1 July 2010 (provided the "work test" is met)
$150,000
 
When considering non-concessional contributions to superannuation, it is important to remember that:
 
(a) Non-concessional contributions include, but are not limited to:
 
a member's excess concessional contributions;
 
contributions by a member's spouse, provided the contribution is not an employer contribution;
(b) certain contributions to a fund may be excluded for the purpose of calculating a member's non-concessional contributions. These include (provided in each instance that certain circumstances are met) contributions from payments and contributions from the disposal of particular small business assets;
(c) the “bring forward” rule continues to apply to non-concessional contributions for those aged under 65. Essentially, the bring forward rule allows a contributor to make non-concessional contributions of up to $450,000 in any 3 year period;
(d) the bring forward rule will automatically be triggered if the non-concessional cap is exceeded;
(e)

while the non-concessional cap is indexed, once the bring forward rule is triggered in any three year period, the triggered amount will not be indexed.

3. Penalties
 
Concessional contributions made in excess of the limit will count towards the member's non-concessional contribution for the year in which the excess contribution was made. In addition, contributions over a limit will attract penalty tax. The current rates of penalty tax as advised by the ATO are:
 
Contribution type
Tax on excess contributions
Concessional
31.5% (+ the 15% tax paid by the super fund).
Non-concessional
46.5%
 
For queries on this article or more information on superannuation contributions, contact Kathleen Conroy.
 
This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.
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This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.