Contribution caps limit the amount a member can contribute to the superannuation system each year without penalty. This article will examine the current contribution rules, and how from 1 July 2017 a member’s total superannuation balance will impact their contribution caps.
At 1 July 2017 the general concessional contributions cap was set at $25,000 and is indexed in increments of $2,500 in line with average weekly ordinary time earnings (AWOTE). There is now no difference in the cap based on a person’s age. This general cap is not influenced by the members total superannuation balance (TSB). The cap will remain at $25,000 for 2020-21.
However, from 1 July 2018 a member may be eligible to utilise unused concessional contributions from prior years based on their TSB.
The unused concessional cap carry forward provision allows a member to contribute more than the general cap in a particular year by using carried forward unused amounts from previous years. The 2018-19 income year is the first year in which you can carry forward an unused amount from your concessional contribution cap and therefore the 2019-20 income year is the first year that you are eligible to use the unused carried forward amounts. Unused amounts can only be carried forward for a maximum of 5 years and after this will expire. A member can take advantage of this provision in an income year if they have a TSB of less than $500,000 on 30 June of the previous income year. In this case the member’s concessional contribution cap for the year will be the general cap plus their unused carry forward amounts. Where a member cannot utilise their carry forward unused cap in a year due to their TSB exceeding the threshold, unused concessional contributions will carry over to the following year and unused amounts in the year will continue to accrue if the member does not contribute up to the general concessional cap.
The non-concessional contribution cap is $100,000 and has been since 1 July 2017. This cap is set as four times the general concessional contribution cap and will remain at $100,000 for 2020-21. From 2017-18 a member’s TSB will impact eligibility to make non-concessional contributions.
A member who had a TSB at or above the general transfer balance cap (currently $1.6 million) at 30 June of the prior income year will be ineligible to make non-concessional contributions during that year – their non-concessional contribution cap will be nil. If a member’s TSB is below the general transfer balance cap their non-concessional contribution cap will be $100,000.
For eligible persons under age 65 the bring forward provisions allow a member to bring forward future non concessional contribution caps to contribute up to three times the annual cap in a single year. From 1 July 2017 a member’s TSB will impact their ability to use the bring forward rule. The bring forward provisions are outlined in the table below:
|Total super balance on prior 30 June||Non-concessional contributions cap for the bring forward rule||Bring-forward period|
|Less than $1.4million||$300,000||3 years|
|$1.4million to less than $1.5million||$200,000||2 years|
|$1.5million to less than $1.6million||$100,000||No bring forward period, annual non-concessional contributions cap applies|
|$1.6million or more||nil||n/a|
Once you trigger the bring forward rule in a year the cap and period over which it applies is locked in and not impacted by any further changes in the general caps. The exception is if the member’s TSB at 30 June exceeds $1.6million at which time the member’s cap reduces to Nil for the following year even if the member is in a bring forward period and has not yet utilised the full amount. This is particularly important to consider where the non-concessional contribution being made will cause the member to exceed the $1.6million TSB threshold.
Note that these rules are based on comparing a member’s TSB against the general transfer balance cap, not their personal transfer balance cap. It does not matter how much of their transfer balance cap has been used, it is the general transfer balance cap to which these TSB thresholds are linked. When the general transfer balance cap increases from $1.6 million to $1.7 million, potentially at 1 July 2021, these thresholds will change.
Whether a member will be entitled to receive Government co-contributions depends on their TSB. A member whose TSB equals or exceeds the general transfer balance cap, currently $1.6 million, as at 30 June will not be eligible to receive co-contributions in the following year.
Spouse tax offset
From 1 July 2017 eligibility for the spouse tax offset depends on the spouse’ TSB. When making a superannuation contribution on behalf of their spouse a member may be eligible to claim a tax offset of up to $540. It is not possible to claim this offset if the contribution would cause the member’s spouse to exceed their non-concessional contributions cap for the year, or if the spouse’s total superannuation balance is equal to or higher than the general transfer balance cap (currently $1.6 million) as at 30 June of the prior income year.
With contribution caps now impacted by a member’s TSB it is important to be aware of a member’s TSB and what events are likely to occur in the year (and future years) that may impact that balance when planning contribution strategies.
Further, we expect the general transfer balance cap may increase at 1 July 2021 or 1 July 2022. Consideration should be given to how an increase in the general transfer balance cap will impact contribution eligibility to allow you to take advantage of future increases in the threshold to which many of the contribution caps are tied.