- December 10, 2023
- Posted by: legaleseblogger
- Category: Related News
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## Planning for the Future: Understanding Concessional Contributions Cap and Salary Sacrifice
As finance enthusiasts, my partner and I have finally achieved our goal of fully paying off our mortgage on our PPOR. Now, I’m considering salary sacrificing into my super, but I’m feeling confused about the concessional contributions cap. I’m earning $100k and my employer contributes $11k to my super. With a cap of $27,500, I’m unsure about how much I can contribute to my super at this point. My payroll has agreed to facilitate this, but I need to nominate an amount. What would be a suitable figure for this? I’m 35 years old, have $120k in super, and a child. While we’re content with our cozy lifestyle, our small house may require maintenance or renovations in the future.
AI Legalese Decoder can assist in clarifying the intricacies of the concessional contributions cap and provide guidance on the optimal amount to contribute to your super. Additionally, it can offer insights into long-term financial planning and the implications of your decisions on your current situation and future goals.
## Managing HELP Debt and Long-Term Financial Goals
In addition to my superannuation considerations, I also have a $50k HELP debt. Although it’s my only debt, I’ve been resigned to the gradual repayment of this amount through my salary. I’d like to seek advice on the most effective approach to managing this debt, especially considering the annual indexation that adds to the overall burden. While I’m not interested in investing in property, I aim to prioritize savings and allocate funds for leisure activities, while minimizing the impact of the HELP debt on my financial well-being.
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Thank you for your valuable insights and guidance.
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The annual cap is $27,500 which includes the super your employer pays and contributions you make for which you claim a deduction for. If your employer pays $11k, you will have $16.5k left for the current year.
As your balance is below $500k, you can contribute more than $16.5k as you can utilise any unused concessional contribution cap amounts from prior years, up to 5 years. Log into your myGov account to see how much you have unused.
As to how much to contribute depends on your goals and priorities. Remember that any amounts contributed are locked away until you’re 60.
HELP debt is usually considered a low cost debt and not a priority. Paying off your mortgage or investing your money would be a better use of your funds.
I contribute money each month, though an amount that will purposely be well under the cap, and then do a top up mid June to take me to the cap. I do this due to the variable amount of my annual bonus. Helps ensure I don’t exceed the cap
> I earn $100k. My employer ads $11k super. The cap is $27,500.> Can I only contribute $16,500 now?
The concessional (before-tax) contribution cap is $27,500 per financial year ~~for individuals under the age of 50~~. This cap includes employer contributions, salary sacrifice contributions, and personal deductible contributions.
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In addition, if you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, AND have not fully utilised your concessional contributions cap in the previous years, you may be eligible to carry-forward any unused concessional contributions cap amounts for up to five consecutive previous financial years.
This effectively means that you can catch-up your unused concessional contributions this year, up to a total of $162,500 over the last 6 years.
(Note that the cap has not been $27,500 for all the previous years. 2020-21 was $25,000)
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**In terms of *HOW* you can contribute:**
If your employer contributions are still under the concessional contributions cap, then you can make Personal Contributions up to the Cap and claim a tax deduction for those contributions.
Personally, I prefer to do this at the end of the FY, a few days before 30 June so that I can calculate my employer contributions for the year, and bring my contributions as close to the cap as possible without breaching it.
The ATO Website includes many more options too:
https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/personal-super-contributions
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If you’ve already maximized your concessional contributions and are considering additional personal (after-tax) contributions to your superannuation, there are a few key points to understand:
**1) Non-Concessional Contributions:**
These are contributions made to your superannuation from your after-tax income. When I last checked, the annual non-concessional contributions cap is $110,000.
There is also a three-year bring-forward rule that allows you to contribute up to $330,000 over a three-year period, depending on your total superannuation balance.
**2) Claiming a Tax Deduction:**
If you want to claim a tax deduction for personal contributions (non-concessional), you must meet specific eligibility criteria. Generally, you need to notify your super fund of your intention to claim a deduction and receive acknowledgment from them. This process is known as the “Notice of Intent.”
**~~10% Rule:~~** ~~To be eligible to claim a tax deduction for personal contributions, you must meet the “less than 10% of total income from employment” rule.This means that less than 10% of your assessable income (including reportable fringe benefits and reportable employer super contributions) should be from employment-related activities.~~
**Notice of Intent:** You typically need to submit a Notice of Intent to your super fund before the end of the financial year or another deadline specified by your
**Confirmation from Super Fund:** The super fund needs to acknowledge the Notice of Intent, and you should receive confirmation.
**Claiming Deduction in Tax Return:** Report the deductible amount in your income tax return.
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**Why would you make non-concessional, after-tax contributions if you can’t claim a tax deduction?**
Assuming:
1. ~~you are not eligible for the 10% rule (meaning more than 10% of your total income comes from employment-related activities), and~~
You meet the “Work Test” and Age Restrictions.
2. you have made additional after-tax contributions within the $110,000 non-concessional contributions cap,
There are still potential advantages to making these contributions:
**Tax-Free Growth:** Once the after-tax contributions are in your superannuation account, any investment earnings on these contributions are generally taxed at a concessional rate of 15% or may even be tax-free once you reach retirement age.
**Long-Term Savings:** Contributing additional funds to your superannuation can help you build a larger nest egg for your retirement. The power of compounding can work in your favor, especially over an extended period.
**Superannuation as a Tax-Effective Vehicle:** Superannuation is designed to be a tax-effective way to save for retirement. Contributions and earnings within the superannuation environment are generally subject to concessional tax treatment.
**Potential for Lower Tax on Investment Earnings:** The concessional tax treatment within superannuation, especially when compared to individual investment accounts, may result in lower taxes on investment earnings over the long term.
**Estate Planning Benefits:** Superannuation offers estate planning benefits, allowing you to nominate beneficiaries to receive your superannuation benefits in the event of your death. This can be an important aspect of your overall financial planning.
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There are several options, but it’s important to consider your individual circumstances, financial goals, and overall financial plan. It’s also advisable to stay informed about any changes in tax laws and superannuation regulations. Consulting with a financial advisor can provide personalized advice based on your specific situation.
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**Edit with corrections** (Thanks /u/snrubovic for pointing some of these out):
* Removed “for individuals under the age of 50”. It is for all ages, but from 67 only if you meet the work test.
* $162,500 for unused concessional contributions is correct, but just highlighting that the cap has not been $27,500 for all the previous years. 2020-21 was $25,000.
* The 10% rule no longer applies from 2017,
* The bring-forward rule for non-concessional contributions applies to anyone up to age 75, not just 50-75 year olds (depending on their Total Super Balance – up to 1.68m can contribute 330k, up to 1.79m can contribute up to 220k and up to 1.9m can contribute just the 110k)
* Work and age restrictions
If you’re under 18 years old at the end of the income year in which you made the contribution, you can only claim a deduction for your personal super contributions if you also earned income as an employee or business operator during the year.
If you’re between 67 and 74 years old:
For the 2020ÔÇô21 and later years, you must meet the work test (or exemption) to claim a tax deduction for personal contributions and have them treated as concessional contributions.
From 1 July 2022, you can make or receive non-concessional personal and salary sacrifice contributions without meeting the work test (or exemption), but you must still meet the work test (or exemption) to claim a deduction for personal superannuation contributions so they are treated as concessional contributions.
If you are 75 years old or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75.
Yes, you have $16,500 left to contribute.
You can also contribute more if you have carryforward amounts (if you had remaining amounts from prior years), you can check this on your myGov/ato. Note the amounts from FY18 will expire after this financial year.
How much can you afford to put in? If you max it out, you could salary sacrifice $1,375 a month (pre tax) but your take home would only reduce by $900.
Don’t over think it just throw more in if u go over by a few $$$ it’s only a small tax adjustment
Yep. Employer payments and mine count towards the cap as I then fill out a notice of intent to claim form, so I can tax deduct the contributions I make, from my post tax pay
Register and login for https://my.gov.au/. Link your ATO service. You can see exactly how much balance you have left to contribute including what is left over from the previous yearÔÇÖs.
https://paycalculator.com.au will do the math for you in the section about salary sacrificing super