Changes to contribution and pension caps
In 2017, the Government decided to limit the amount individuals could contribute to their superannuation and the amount they could put into their pension account.
You were limited to putting $25,000 into superannuation where either you or your employer claimed a tax deduction or $100,000 where you did not claim a tax deduction. Further, a maximum of $1.6 million could be placed into a pension account.
It was always intended that these limits would increase in 10% jumps in line with inflation. Once the Consumer Price Index (‘CPI’) increased by 10% then all these limits would also increase by 10%. The increase in the CPI is the rate of inflation for Australia.
The CPI has now increased by 10% since 2017 and the government has announced an increase in all the above limits by 10%. So, from 1 July 2021 you will be able to contribute up to:
- $27,500 where either your employer or you (depending on who makes the contribution) will be able to claim a tax deduction for that contribution. These contributions are called Concessional Contributions.
- $110,000 in contributions that you do not claim a tax deduction for. These contributions are called Nonconcessional Contributions.
- The limit to the amount you can contribute to a pension account has also been increased to $1.7 million however this increase only applies to people who have not yet placed any money into a pension.
There are other rules that also applied to the maximum amount that you can contribute to super. For example, if you have not contributed the maximum $25,000 over the past few years then you may be able to make a “catch-up contribution”. These catch up contributions can be very handy in years that you have a big jump in income from things such as the capital gain on the sale of an investment property.
For non-concessional contributions, you may be able to bring forward your cap from the next two years and contribute three times as much this year. However, if you do this, you cannot make any more non concessional contributions over the next three years. People with more than $1.6 million are not allowed to make any non concessional contributions but this number will also change to $1.7 million on 1 July 2021.
There are complicated rules around the pension limits for people who have already started a pension before the start of July this year and if you are in that position, get in contact with your financial advisor to better understand.
Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.