Superannuation: Contribution Limit Increases
Investing for your future has just had a shot in the arm with confirmation that additional amounts can be invested into superannuation from 1 July 2014. The Australian Taxation Office updated the contribution caps on its website this week confirming the increase.
After 1 July the concessional contributions (i.e. contributions before tax) have increased such that those under 50 can put in an extra $5,000 taking the total contribution to $30,000. For those aged 50 and over the threshold increases by $10,000 taking the limit to $35,000. Importantly, this higher contribution banding has been expanded to those aged 49 or over on 30 June 2014 whereas it was only for those aged 59 and over in the 2013-2014 year.
Historically, these increases were indexed such that they increased on a regular basis, however, the caps were frozen until 1 July 2014. At that date it was expected to increase to $30,000, and this was confirmed this week by the Australian Taxation Office updating the contribution caps on its website.
There is an added bonus for those really keen to invest for their retirement. The after-tax contributions (often referred to as “non-concessional” contributions) will also increase with effect from 1 July 2014. Currently, the cap is $150,000 per annum calculated as a multiple of six times the concessional cap limit. Following the increase in the concessional cap, the non concessional cap increases to $180,000.
Those considering investing in superannuation can also make use of the “bring forward” rules which enable an individual to contribute 3 years worth of non concessional contributions in one year (i.e. up to $450,000 for the 2013-2014 year). This does however mean that nothing can be contributed for the following 2 years.
Following the change in non-concessional limit, the strategy around using these “bring forward" rules will need to be re-examined. For example, rather than bringing forward in the 2013-2014 year, a taxpayer could contribute only the single year maximum of $150,000 and then utilize the bring forward rules in 2014-2015 which would enable an additional $90,000 to be contributed into super. Such a strategy could increase the value of your super by almost $700,000 over the next 5 months.
Care should be taken though to avoid breaching the thresholds as this can result in an adverse outcome.
Saving effectively for retirement significantly increases the opportunity to have a better lifestyle in retirement. Investing into superannuation is a tax efficient environment when compared to investing in the same assets outside of superannuation.
Should you have any questions in relation to contributing to superannuation or your limits generally please contact David Prichard on 02 9275 0249 or contact your applicable ESV engagement partner.
Article by David Prichard