From 1 July 2017, the limit on low-tax superannuation (concessional) contributions will be reduced to $25,000 for everyone, at a time when members of Australian Government defined benefit superannuation schemes will have significantly higher amounts of defined benefit contributions counting towards that limit.
The limit on the total amount of concessional contributions that can be made on behalf of any person in a given financial year is called the concessional contributions cap. And if you go over the cap in a given financial year, your superannuation may be subjected to additional tax.
Concessional contributions include low tax contributions, such as employer superannuation contributions, salary sacrifice contributions as well as any personal superannuation contributions claimed as a tax deduction.
For members of defined benefit superannuation funds, a notional amount of defined benefit contributions will be determined using complex methodology prescribed by tax regulations and factors determined by actuaries.
This notional amount will count towards the concessional contributions cap for the first time from 2017/18 and it is counted before any other concessional contributions.
When the total amount of concessional contributions made by, or on behalf of, an individual in a given financial year exceeds the cap, additional tax at the individual’s marginal tax rate generally becomes payable on the amount over the cap.
For members whose defined benefit contributions exceed the cap, excess concessional contributions tax will not be charged on their defined benefit contributions. But their concessional contributions cap will be reduced to zero for the purposes of any other low tax superannuation contributions.
Members of defined benefit superannuation schemes who are actively salary sacrificing superannuation should check that the total of their notional defined benefit contributions and their other concessional contributions are under the new $25,000 cap.
They may need to make adjustments to their salary sacrifice arrangements to avoid paying additional tax.
Do you need to calculate your defined benefit contributions?
Super Info has developed an online tool to help individuals and financial professionals estimate the amount of notional defined benefit contributions for Australian Government defined benefit schemes. Click here for more.