Changes to Superannuation
1 July 2021 see quite a few changes to Superannuation in Australia and it’s important that both business owners and employees are aware of these changes.
First the basics, there are few ways that you are able to contribute into your superannuation fund. The most common are
Superannuation Guarantee Contributions - your employer makes contributions on your behalf as part of your remuneration package.
Concessional Contributions - individuals are able to make further contributions to their fund and receive a tax deduction for these contributions up to a limit.
Non-Concessional Contributions - individuals are able to make contributions for which they do not receive a tax deduction up to the non-concessional cap.
Increase to Super Guarantee Rate
Despite talk that the increases to Superannuation Guarantee rates would be delayed, the recent 2021 Federal Budget that was handed down did not propose any changes to the legislated increases.
As a result, employers will be required to make super guarantee contributions of 10% (increased from 9.5%) of employee wages from 1 July 2021.
You should also be aware that super guarantee rates are scheduled to increase by 0.5% from the 1st of July each year until 1 July 2025 when the super guarantee rate will reach 12%.
Increase to Concessional Contributions Cap
As of 1 July 2021 the total concessional contributions cap will increase to $27,500 (from $25,000). This concessional contributions cap includes both superannuation guarantee contributions and personal super contributions for which individuals receive a tax deduction.
Carry Forward Concessional Contributions Cap Still Available
From the 2019-20 financial year, the superannuation carry forward rules allow you to access unused concessional contributions caps from prior years if your superannuation fund balance is less than $500,000.
If you are eligible to carry forward for your concessional contributions caps you will be able to do so until the end of the 2023-24 financial year.
It is also important to note that your excess concessional contributions are not included when calculating your income for Division 293 purposes.
Increase to Non-Concessional Contributions Cap
From 1 July 2021 individuals are able to make after tax contributions to their superannuation fund up to $110,000 per year (increased from $100,000).
For super fund members under 65, you may be able to bring forward this cap for up to three years. This allows a potential maximum contribution of $330,000 in one for eligible members.
Why would you contribute more to super?
Where an individual makes a contribution from “before tax money” (super guarantee or concessional contribution) the super fund pays tax on those contributions at 15%. Where your personal marginal tax rate is higher than 15% you are effectively saving the difference in tax rates by contributing the money into super.
While for non concessional contributions the super fund does not pay tax on those contributions.
The objective of the superfund is to then invest those contributions on the member’s behalf. The earnings made by the superfund are then taxed at concessional rates which would be much higher if you invested that money in your own name and paid tax outside of super.
What happens if you contribute too much?
If you exceed the contributions caps for superannuation you may have to pay additional tax on those contributions that exceed the cap.
In some cases, you are able to have the excess contribution released from the super fund (within certain time limits). Where you don’t have the excess contributions released you will have additional tax applied of 47% of non concessional contributions and up to 94% for concessional contributions.
Where to get more help?
Superannuation is a specialised area in which only licensed superannuation advisors can guide you on how to manage your superannuation.
Contact the Conscious Wealth Creation team if you have questions and we will guide you on the best way forward.