Following on from last week’s email on maximising concessional (pre-tax) contributions into superannuation, this week’s email looks at maximising non-concessional or after tax contributions into superannuation.
Non-concessional super contributions are those on which no tax deduction is claimed. They can be either in the form of cash or for those running a Self-Managed Super Fund, transferring personally owned assets into superannuation as an in-specie transfer.
Any superannuation contributions made in excess of the concessional and non-concessional caps may have penalty tax applied, so care must be taken to monitor how much is contributed each year.
Unlike pre-tax concessional contributions, non-concessional contributions are not taxed when deposited into superannuation and count towards the tax-free component of your superannuation benefit.
In addition, given the relatively small cap on concessional contributions of $25,000 per annum, non-concessional contributions are a way of significantly boosting your superannuation savings for retirement.
What is the non-concessional contribution cap?
The non-concessional contributions cap is $100,000 for the 2017/18 financial year. In addition, contributions can only be made if the balance of your superannuation savings are less than $1.6 million. If your total superannuation balance was greater than or equal to $1.6 million as at 30 June 2017, your non-concessional contributions cap will be nil.
There are a couple of instances where contributions will not count for the non-concessional contributions cap. These include contributions arising from personal injury payments and up to $1.445 million (for the 2017/18 financial year) contributed under small business CGT concessions. Both of these opportunities can help you increase how much you can get into super.
If you are aged under 65, you can contribute up to $300,000 in the one financial year by choosing to bring forward the next two years contribution limits. The ‘bring forward’ option is triggered as soon as you make non-concessional contributions in excess of the $100,000 annual cap.
If you turn age 65 during a bring forward period you can continue to make contributions under this total limit but after your 65th birthday you must make sure you have met the work test requirements for the financial year before making a contribution and each contribution cannot exceed $100,000.
The work test is met if you have been gainfully employed for at least 40 hours in a period of 30 consecutive days in the financial year. The work test does not apply to those who at the time of the contribution, are under the age of 65. The work test, if applicable, must be met prior to the contribution being made.
Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, occupation or employment. The concept of ‘gain or reward’ envisages receipt of remuneration such as salary or wages, business income, commissions etc in return for personal exertion.
As previously mentioned, when considering making non-concessional contributions into superannuation, it is important to review previous year’s contributions to ensure that you do not breach contributions caps and pay excess tax. Non-concessional Contributions can be made using cash or off-market transfers of shares into superannuation. However, the transfer of personal shares may have capital gains tax consequences, so we strongly recommend that you seek our advice on this.
To take advantage of this contribution strategy, you have to need to ensure that your contributions are deposited into your superannuation fund before Friday, 29th June. If you need assistance in understanding how much you may have already contributed, and how much more you can contribute to reach your cap, please contact us.