Superannuation contributions – don’t leave it too late

With 30 June fast approaching, it is necessary to be aware of the timing issues that may impact superannuation deductions and your contribution caps. In general, provided the relevant conditions are met, superannuation deductions can only be claimed in the year the superannuation fund receives the contributions.

Concessional contributions cap
The concessional superannuation contribution cap is $25,000 for the 2019-20 year which includes superannuation guarantee paid for by an employer, personal contributions and salary sacrificed amounts. Amounts paid into the superannuation fund up to the concessional contributions cap are taxed at 15% within the superannuation fund.

Payments made in excess of the cap will be included in your assessable income and taxed at your marginal tax rates. You will, however, receive a 15% tax offset for the tax paid within the superannuation fund. Furthermore, you will also be required to pay excess concessional contributions (ECC) charge when the ATO issue you with an ECC determination. You are entitled to elect to release up to 85% of the amount specified in the determination from your superannuation fund if you exceed the cap.

If you have a total superannuation balance of less than $500,000, you may be entitled to contribute more than the concessional contributions cap of $25,000, potentially up to $50,000. Under the carry forward rule, some individuals can carry forward their unused concessional contributions cap from a previous year to a later year. The first year you will be entitled to utilise carry forward unused amounts is the 2019–20 financial year (being amounts carried forward from 2018/19).

Example - Timing it incorrectly
During the 2019-20, Bob’s employers made superannuation guarantee contributions of $20,000 which counts towards his concessional contributions cap. Bob wishes to contribute an additional $5,000 and makes an electronic funds transfer on 30 June 2020 to his superannuation fund. However, the payment is received in the superannuation fund on 2 July 2020.

Bob will not be able to claim $5,000 as a tax deduction in the 2020 financial year as the fund did not receive the contributions by 30 June 2020. The $5,000 will count towards his concessional contributions cap during the 2020-21 year if he lodges a notice of intent by the relevant date. Bob will then have to be mindful of timing his contributions during the 2020-21 financial to ensure he does not land up paying excess contribution tax.

Age restrictions and the work test
Under the age of 65, no work test applies to voluntary super contributions by members and accordingly a fund trustee can accept a contribution for a member regardless of their work status. If you are aged between 65-74 at the time of making a contribution, generally you must have satisfied the work test in order for a fund to accept any personal contributions and thereby be able to claim a deduction for personal contributions made during the 2019-20 income year. After you turn 65, to satisfy the work test, you must have worked at least 40 hours during a consecutive 30-day period, usually prior to making the contribution.

If your superannuation fund balance is below $300,000, there may be an exemption available if you met the 40-hour requirement in the 2018-19 income year, but not in the 2019-20 year. All relevant requirements should be considered in this case.

Notification requirements – personal contributions
If you are making a personal concessional contribution, you are required to submit a “Notice of Intent” to your superannuation fund to claim a deduction. This notice needs to be submitted by the earlier of:
  • the day you lodge your tax return for the year in which the contributions were made; or
  • the last day of the next income year.
For example, if you make a contribution on 20 June 2020, you must lodge the notice by the lodgment day of your income tax return or 30 June 2021 – whichever is earlier. Your fund will then send you written acknowledgement of these deductible contributions.

If the notice or trustee ackowledgement is not lodged by the required dates, you may miss out on the tax deduction.

Division 293 Tax
If your income for Medicare levy surcharge purposes is above $250,000, there is a separate Division 293 tax assessment issued on lodgment of your tax return which levies an additional 15% tax on your concessional contributions. An election can be made to have this tax paid by the superannuation fund.

Contact one of the members of our Superannuation team if you would like to discuss this in further detail.