Q. I am looking to contribute $280,000 this financial year to Superannuation from the recent sale of an investment property. I work part-time having turned 65 in March this year. I read that I can only contribute $100,000 this financial year to Super. Is this true?
A. There are limits as to how much can be contributed to Superannuation each financial year. The limit for after-tax, non- concessional contributions for the 2018- 2019 financial year is $100,000. If you’re under age 65 or turned 65 within the financial year in which you intend to make the contribution, you can also ‘bring forward’ up to 3 years’ worth of after-tax contributions, which means you could contribute up to $300,000 in a financial year.
As you turned 65 within the same financial year as the one in which you intend to make the contribution, you may be eligible to contribute the $280,000. However, from 1 July 2019, you will thereafter be limited to non-concessional contributions $100,000 based on your age.
There are important additional restrictions that limit your ability to make non-concessional contributions based on your total Superannuation balance. Your total Superannuation balance comprises amounts you have in the accumulation phase of super and also amounts held in pension phase. If your total superannuation balance at 30 June of the previous year was $1.6 million or more, you are ineligible to make non-concessional contributions. If your balance was between $1.5 million and $1.6 million, you are limited to $100,000 of non-concessional contributions. If your balance was between $1.4 million and $1.5 million, the limit under bring forward is $200,000 of non-concessional contributions.
Whilst you are eligible to make a non-concessional contribution based on your age, it is also important to recognise that once you have turned 65, you are still obliged to satisfy the work test of working 40 hours in a 30 day period in the tax year prior to making the contribution.
Q. Could you please explain how the Superannuation “Catch Up” provisions that come into effect from 1 July 2019 will work. I am 55 and have a Super balance of $405,000. I earn $100,000 a year and receive the 9.5% Employer Superannuation Contributions.
A. Since 1 July 2018, individuals with a total Superannuation balance of less than $500,000 are able to carry forward their unused Concessional Contribution Cap for up to five years. Your total Superannuation balance is calculated by adding together all the amounts you have in the accumulation phase and pension phase of your super at 30 June of each financial year.
The Concessional Contribution (CC) Cap refers to the limit on the concessional superannuation contributions you can make in a Financial Year. This includes salary sacrifice and compulsory employer contributions, as well as any personal contributions which you may claim as a tax deduction in your tax return. The cap for the 2018-2019 Tax year is $25,000.
Amounts of unused CC’s arise when you have not fully used your CC cap in a tax year. Individuals will be able to utilise their unused CC Cap on a rolling basis for a period of five years. Amounts that have not been utilised after five years will expire.
In your case, as you earn $100,000 and receive 9.5% Employer Superannuation Guarantee Contributions (SGC), you receive $9,500 of Concessional Contributions. Assuming you make no additional concessional contributions in this financial year, you will be eligible to carry forward $15,500 of unused CC Cap into future financial years from the 2018-19 tax year.
Assuming your income doesn’t increase and you made no additional concessional contributions this financial year, nor in the 2019-20 tax year, in the 2021-22 financial year, you would be able to personally contribute a tax-deductible contribution $46,500 which represent three years of the unused Concessional Contribution cap of $15,500 a year.
Under the rules for carry-forward contributions, your total Superannuation balance is determined on your 30 June closing balance in the financial year prior to the start of the financial year in which you wish to make the additional concessional contributions. For example, if you wanted to make a carry-forward concessional contribution in the 2019-2020 financial year, your total Superannuation balance must be under $500,000 on the 30 June 2019.
To be eligible to contribute to Superannuation you will need to be either under age 65 or satisfy the work test of 40 hours in a 30 day period in the tax year prior to making a contribution if older than 65 up to age 75.