The Concessional Contributions Cap can be a powerful tool to boost your retirement savings. From 1 July 2024, the Concessional Contributions Cap increased from $27,500 to $30,000. This is good news if you want to contribute more to your superannuation and reduce your marginal tax rate on your income. In addition, if you do not reach your cap in one year, you can carry forward unused caps to future years.
Let’s look at the Concessional Contributions Cap in detail and how it can help boost your superannuation for a better retirement.
What is the Concessional Contributions Cap?
If you are an employee, you receive a superannuation guarantee of 11.5% of your salary, deposited into your super account and taxed at a concessional rate of 15%. If you choose to contribute extra to your super account through salary sacrifice, these contributions will be taxed at the 15% concessional rate as well (or 30% if your income plus before-tax contributions exceed $250,000 per year).
Previously, the cap on concessional contributions was $27,500 per year. So if your contribution was more than this amount, the amount above the contribution could be taxed at your marginal tax rate . As of 1 July 2024, the concessional contributions cap was increased to $30,000 per year.
For example, if your annual income is $150,000 (not including superannuation), you receive $17,250 (11.5% of your salary) from your employer as part of the superannuation guarantee. This is taxed at the 15% concessional rate and paid out of your superannuation account. In this case, the tax is $2,750.50 (15% x $17,250). If you choose to salary sacrifice and contribute an additional $10,000 from your salary during the financial year, this will also be taxed at the concessional rate of 15% because total contributions to your superannuation were $27,250, which is under the $30,000 cap.
What happens if your annual superannuation contributions exceed $30,000?
If we use the previous example – with a $150,000 annual salary and superannuation guarantee amount of $17,250 – but you decide to contribute an additional $20,000 to your superannuation, your total annual superannuation contribution will be $37,250. This is above the $30,000 concessional cap. In this case, the tax on your additional contribution would be $4,520. This includes $12,250 taxed at the 15% concessional rate ($12,250 x 0.15 = $1,837.50) and $7,250 taxed at the marginal rate of 37% ($7,250 x 0.37 = $2,682). So every dollar that exceeds the concessional cap amount is taxed at nearly 2.5 times the concessional rate.
How you can avoid paying the marginal tax rate when you exceed the concessional cap
If you are in a situation where you want to contribute an amount that will result in exceeding the concessional cap, you can still be taxed at the 15% concessional rate by carrying forward unused concessional amounts from the previous five financial years if your total superannuation balance is less than $500,000.
Keep in mind that the concessional caps have changed over the years:
- The general concessional contributions cap for the 2021/22, 2022/23 and 2023/24 financial years was $27,500 for all individuals regardless of age.
- The general concessional contributions cap for the 2017/18, 2018/19, 2019/20 and 2020–21 financial years was $25,000 for all individuals regardless of age.
Since you can only carry forward from five previous financial years, the unused cap amount from 2019-2020 not used by the end of 2024/2025 will expire. The oldest available unused cap amounts are carried forward first. For example, unused cap amounts from 2019–20 would be used to increase your cap first before using unused cap amounts from 2020–21.
Track your super to avoid paying your marginal tax rate on additional contributions
Keeping track of all annual contributions will help you avoid exceeding the concessional cap and paying your marginal tax rate on voluntary contributions. If you have multiple employers or several superannuation accounts, it’s important to keep track of super contributions. This includes contributions you, your employer(s), or others make on your behalf. Concessional contributions made to all your funds during a financial year are added together and counted towards your concessional contributions cap.
If you find you are reaching the cap for the year, you will need to choose if you want to stop making voluntary contributions or continue making contributions and carry forward concessional amounts from previous years. If you’re unsure of your concessional contributions for the financial year, you can check this amount through ATO online services, which can be accessed from your MyGov account.
Minimise tax while maximising your superannuation account
Getting the most from your superannuation requires concrete decisions and action. It can be challenging to avoid confusion and keep up with changes to get the most from your superannuation contributions. Our team at Equil Advisory are ready to discuss effective tax and retirement planning and how we can help make it happen. Get in touch to start reaping the benefits.
