From 1 July 2021, the Employer SGC rate has been increased and the maximum concessional and non-concessional superannuation contribution caps have finally been indexed along with the Total Super Balance Cap and Transfer Balance Cap.
Employer Superannuation Guarantee
From 1 July 2021 the amount of Superannuation Guarantee Contributions (SGC) that employers have to pay on their employees’ wages is increasing from 9.5% to 10%. And, will increase again from 1 July 2022 to 10.5%. Employers will need to ensure that their payroll systems are updated from 1 July.
Concessional Contributions (CCs) are the tax deductible contributions made by either:
- Individuals (who then claim the deduction in their personal tax return); or
- Employers (in the form of SGC or salary sacrifice contributions for their employees).
The concessional contribution cap was originally set at $25,000 from 1 July 2017 to be indexed by average weekly ordinary time earnings (AWOTE) in increments of $2,500. With the announcement of the AWOTE figure for the December 2020 quarter, the concessional contribution cap is set to increase from $25,000 p.a. to $27,500 pa from 1 July 2021 ie the 2021/22 financial year.
The increase in the SGC rate and the increase in the maximum concessional contributions cap means that employers should expect employees to want to review and update their salary packages effective from 1 July 2021 with particular reference to salary sacrificed superannuation to ensure that they maximise but not exceed the new Concessional Contribution caps.
Non-concessional contributions (NCC’s) are after-tax super contributions made by individuals.
The non-concessional cap has also been indexed resulting in an increase from $100,000 to $110,000 from 1 July 2021. Individuals under 67 are still allowed to bring forward three years of contributions which now means they can contribute up to $330,000 in one year. However, the amount of NCCs that can be made is also restricted by a person’s Total Super Balance (refer more details below).
Total Super Balance:
A person’s Total Super Balance (TSB) is calculated at 30 June each year and then affects eligibility the following year for various super-related measures such as:
- Non-concessional contributions (NCCs) including Bring Forward NCCs (see below)
- Government Co-Contribution
- Spouse Tax Offset
The Total Super Balance threshold has been increased for those measures above from $1.6M to $1.7M from 1 July 2021.
The TSB threshold has not been changed for:
- Carry forward concessional contributions ($500,000 limit)
- Work Test exemptions for people over 67 ($300,000 limit)
The amount of NCCs a person can make in a particular financial year is restricted by their Total Super Balance at 30 June the previous year. The following table outlines how your total super balance (TSB) will be impacted by the increase in the NCC cap and Total Super Balance cap.
|Total Super Balance at 30 June 2021||Non-concessional contribution cap / bring forward rules|
|$1.7m or more||$0, no bring forward|
|$1.59m or more but less than $1.7m||$110,000, no bring forward|
|$1.48m or more but less than $1.59m||$220,000, 2 year bring forward period|
|Less than $1.48m||$330,000, 3 year bring forward period|
Transfer Balance Cap:
The Transfer Balance Cap is the lifetime limit on the total amount of superannuation that can be transferred into retirement phase income streams, including most pensions and annuities.
All retirement phase income streams and retirement phase death benefit income streams you receive count towards your transfer balance cap. The age pension (or other types of government payments) and pensions received from foreign super funds do not count towards your transfer balance cap.
The general transfer balance cap, currently $1.6 million, will be indexed to $1.7 million on 1 July 2021.
There are a number of important flow on impacts to be considered including
- Timing of large non-concessional contributions
- Unexpected impacts on the bring forward rules
- Double deduction strategies
Timing of large non-concessional contributions
If you are considering a large non-concessional contribution you will need to think carefully and consult with your financial planner about whether to do this in this financial year (2020/21) or next (2021/22.)
Watching unexpected impacts on the bring forward rules
When your super balance is sitting close to these thresholds, it pays to be paying attention to those small contribution that your may forget about. Bring forward periods are triggered automatically when the annual non-concessional cap is exceeded.
Items to watch for are small contribution amounts that have been forgotten about which cause you to exceed the cap even though you may believe you have only contributed $100,000. These include:
- personal contributions to an industry fund to maintain insurance cover
- personal contributions for which a tax deduction has been denied
- spouse contributions
- SMSF expenses paid personally that weren’t reimbursed, and
- excess concessional contributions where no action was taken on the excess notice and so the contributions remained in the fund (remember these only count towards the non-concessional contributions cap if they are not refunded)
Exceeding the contributions caps will result in Excess Contribution Notices from the ATO.
These new caps provide opportunities but also points to consider before making extra contributions. We recommend booking in with your Accountant or Financial Advisor to discuss your options in the lead up to the end of this financial year.
Individuals should seek advice from a licensed financial planner (eg Everalls Wealth Management) to determine if making additional superannuation contributions is appropriate for their personal circumstances.
Please don’t leave seeking advice or making contributions to the last minute in June as many funds “close for contributions” a week or two before 30 June.
We can help make these decisions easier for you – speak with the team today.