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 time. One of these factors is super contributions.

 Super contributions

In terms of super contributions, it’s important to understand that there are two main types:

  • Concessional contributions. A concessional contribution generally refers to a contribution that can be claimed as a tax deduction by the contributor, e.g. employer contributions (including salary sacrifice), and personal deductible contributions.
  • Non-concessional contributions. A non-concessional contribution generally refers to an after-tax contribution that isn’t (or can’t be) claimed as a tax deduction by the contributor, e.g. personal contributions not claimed as a tax deduction and spouse contributions (for the recipient).

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:

  • The annual concessional contributions cap is currently $25,000. Please note: The carry-forward provision, allows you to carry forward unused concessional contributions cap amounts on a rolling basis for a period of up to 5 years if you meet certain requirements.
  • The annual non-concessional contributions cap is $100,000 per annum, and the maximum that can be contributed in one financial year by bringing forward the caps of the next two financial years (the bring-forward rule) is currently $300,000. 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 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 2021-22 financial year:

  • The annual concessional contributions cap is set to be $27,500.
  • The annual non-concessional contributions cap is set to be $110,000, and the maximum contribution utilising the bring-forward rule is set to be $330,000.

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. The general transfer balance cap is equal to the total superannuation balance threshold at which the non-concessional contributions cap is $0. Your total super balance measured at 30 June of the last financial year.

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:

  • With the increase in the annual concessional contributions cap from 1 July 2021, you may wish to review the existing concessional contributions to your super account, e.g. employer contributions (including salary sacrifice), and personal deductible contributions.
  • If you have triggered the bring-forward rule prior to 1 July 2021, you won’t benefit from the 1 July 2021 indexation of the non-concessional contributions cap until your bring-forward period has elapsed. However, depending on whether you have commenced a retirement pension or not, you may benefit from the indexation of the general transfer balance cap from 1 July 2021.
  • The Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 is still sitting before Parliament. If enacted in its current form, this Bill would allow an individual under 67 years of age anytime during the financial year, rather than under 65 years of age, to access the bring-forward non-concessional contributions cap in a particular financial year. Also of note, in the Bill’s current form, this change would apply to non-concessional contributions made on or after 1 July 2020 (backdated).
  • The work test must be met if you are 67 years or older when the contribution is made unless you qualify for the work test exemption.

Information correct as at March 2021.