Q. I have just turned 50 and I have been Salary Sacrificing at the maximum amount to target my Concessional Contribution Cap of $25,000. My Taxable income is $126,000 + Super. With the changes to the Employer Superannuation Guarantee Contribution to 9.5% how do I calculate my new Concessional Contribution Cap?
A. The good news is that in addition to your Employer Superannuation Contribution increasing from 9.25% to 9.5% (effective 1 July 2014), your Concessional Contribution Cap increases from $25,000 to $35,000. For those under 49 at 30 June 2014, the Cap has increased to $30,000.
To target fund your Concessional Contribution Cap, determine how much your employer will be contributing. Assuming your Employer Contributes at the standard Superannuation Guarantee rate of 9.5% (important to check this) and based on your Income of $126,000, your employer will contribute $11,970. This is an increase of $315 from 1 July 2014. With the revised Concessional Contribution Cap, you could Salary Sacrifice up to $23,030.
Assuming you Salary Sacrificed to the maximum in the 2013-2014 tax year, you will now be able to Salary Sacrifice an additional $9,685 in the 2014-2015 tax year. This will reduce your after tax income by approximately $6100 compared to last tax year.
Be careful not to sacrifice more than this as you will exceed the Cap and as a consequence be liable for additional tax. Please ensure you allow for any Employer Superannuation payments made for bonuses or commissions you may receive. Also check when your employer has made contributions in the Financial year as caps are determined by when the contributions are received by the fund not when they are sent or calculated by the employer.
If you inadvertently exceed the Cap, the excess amount will be taxed at an additional rate of 31.5% and will count towards your Non-Concessional Contribution Cap. In the first instance of exceeding the cap, the ATO permits a reversal of the contribution provided the amount is less than $10,000.