What if you exceed your contribution caps

What if you exceed your contribution caps
It pays to double check your contributions.

While we’re discussing putting extra money into super, it is important that you realize what sort of contributions you can make to super and when and what should happen if for some reasons you should inadvertently exceed your contributions caps.

Basically, there are two types of contributions to super. Concessional superannuation contributions are where you can claim a tax deduction for them to reduce your overall tax bill and so you can contribute up to $30,000 a year.

Once you make a concessional tax bill, your super fund is required to tax these contributions at 15 per cent, so this is why you need to check with your tax agent to ensure you are saving money overall by making this type of contribution.

Alternatively, you can contribute up to $120,000 to super as a non-concessional contribution each year and not claim a tax deduction for it. In contributing after tax funds to super, you will not have to pay the contribution tax, so it’s a clever way of boosting your super savings.

Under the ‘three year bring forward rule’ you can contribute up to $360,000 to super in any three -year period. So, you might contribute $120,000 to super in June and then a further $360,000 in July and no more for the next two financial years.

This can be a good way of getting a big chunk of money into super if for example, you suddenly inherit funds or sell an investment property and of course, the reason to put any spare funds into super in this way is so they are only taxed at 15 per cent and not your marginal tax rate.

I should also mention that an additional non-concessional contribution is effectively the downsizer contribution, where if you sell a family home that you have lived in for ten years, you can contribute on a non-concessional basis up to $300,000 each to super.

 If you find you have inadvertently breached these contributions levels, most super funds will give you a short period of grace to correct it, so it is important to talk to your super fund if you think this might be the case.

Its easy to see how a super has treated you contribution. If it has been taxed at 15 per cent, then it has been treated as a concessional contribution. If it hasn’t been taxed, then it is a non-concessional contribution. It pays to check after you’ve made a contribution.

If you do breach your cap limit and are unaware of it, any excess contributions will be taxed at your marginal tax rate less a 15 per cent rebate, and you may also be charged interest by the ATO on the amount that you have breached the cap.

At the end of the year, when the ATO completes its assessment of your super fund and discover the breech, you will have the option of withdrawing up to 85 per cent of the amount that breached the cap or leave the excess contributions in your super and just accept the tax penalty.