The indexing of super contribution caps and benefit thresholds on July 1 will be particularly welcome this year as it’s effectively the first time these caps have been indexed since 2007.
However if you want to make super contributions, especially non-concessional contributions in the near future then you will need to plan carefully. Non-concessional contributions are mainly personal super contributions not claimed as a tax deduction.
Concessional contribution caps for 2014/15
If you’re aged at least 49 on 30 June 2014 you’ll have a concessional contribution cap of $35,000 in the 2014/15 financial year.
Everyone else will have a concessional contribution cap of $30,000 for that year.
Concessional contributions are primarily personal contributions claimed as a tax deduction and all employer contributions.
Any contribution made above these caps is taxed at your marginal tax rate and next year the Temporary Budget Repair Levy (TRBL), if it becomes law, will also apply.
Maximising super contributions next year (rather than this year) might help you reduce the impact of the 2% TBRL. This levy applies to taxable income, which means you might want to consider increasing your salary sacrifice contributions, to lower your taxable income.
Increase in the non-concessional cap
The non-concessional contribution cap is set at six times the standard annual concessional contribution cap. As this standard cap will increase to $30,000 for 2014/15, the non-concessional contribution cap will increase from $150,000 to $180,000.
Because of this increase, the three year bring forward non-concessional contribution cap goes up from $450,000 to $540,000 after June 2014. This bring forward amount is available to anyone under age 65 at the start of a financial year.
I wrote about using the bring forward rule in September 2011. You can read that article here [1].
Any contributions above these non-concessional contribution caps are taxed at 46.5%. The Abbott Government has proposed (in this year’s Federal Budget) to tax these contributions at your marginal tax rate and these amounts can also be removed from super before retirement. We’ll have to wait and see legislation before knowing how these proposed rules might work.
A three-year bring forward period begins in the financial year you first make non-concessional contributions above the cap for that financial year.
If the bring forward rule was started in the 2013 financial year then the 2014 and 2015 financial years are covered by the 2013 non-concessional contribution bring forward cap ($450,000).
The increase in the bring forward cap (ie to $540,000) that applies from 1 July won’t be available if you’ve made a non-concessional contribution larger than $150,000 before then.
But if you were to commence a three year bring forward period after 30 June 2014 then you can access a cap of $540,000 for three financial years.
Let’s look at an example. Suppose Mary will turn 65 in April 2015 and before 1 July 2014 she makes a $175,000 contribution. She’s now locked into the $450,000 three-year bring forward rule for the 2014, 2015 and 2016 financial years combined. To avoid excess non-concessional contribution tax she’s limited to $450,000 in non-concessional contributions in those years.
If Mary had made a non-concessional contribution of less than $150,000 (the annual cap) in the 2013/14 financial year she could have accessed the $540,000 bring forward non-concessional contribution limit in the 2014/15 financial year and maximised her entitlements.
Super lump sum tax-free withdrawals indexed
Finally, on 1 July 2014 the limit for the maximum taxable component you can withdraw from super tax free, if you’re aged between 55 and 60, has been increased from $180,0000 to $185,000.
This increased threshold might come in handy if you’re seeking to withdraw money from super and re-contribute it back into super as non-concessional contributions. Be aware that if you were born before July 1960 then access to super when aged at least 55 but under 60, is restricted to those who can declare that they’re fully retired and have no plans to return to work.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Charlie Aitken and John Pearce: The Westfield split – For and Against [2]
- Staff reporter: Buy, Sell, Hold – what the brokers say [3]
- Jo Heighway: My SMSF – how to focus on yield [4]
- Roger Montgomery: The resource service sector headwinds [5]
- Questions of the week: Hybrids and bank shares [6]