When making superannuation contributions, it’s critical that you avoid the cap trap. The cap trap comes into play when you exceed either or both of the superannuation contribution limits. This is astonishingly easy to do if you don’t keep track of how much is being contributed, as well as the type of contribution that is being made.
The thing is, should you find yourself making contributions above the threshold, you will be slugged by all sorts of penalties that come in to force.
The concessional cap is $25,000 regardless of your age. A special one-off concession lifts this cap to $35,000, though it is strictly for members that exceed the super cap by less than $10,000. If the excess is greater than $10,000 - even by just a couple of dollars - then the 31.5% penalty will apply to the whole amount. This lifts the total tax to 46.5% when you take into account the 15% that is paid by the fund under the contribution rules. Let me stress that this is a one-off concession. It can only be claimed once.
Top 5 tips to avoid the cap trap
Here are my top five trips to help you avoid being hit by the super cap trap.
- Keep track of contributions already made into all funds over a financial year and ensure you account for Superannuation Guarantee (SG) contributions as they are included under the cap.
- Check when SG contributions are deposited into your fund - often contributions for the June quarter are made in July and take into account deductible superannuation insurance premiums and costs that are paid by an employer as they also count towards the cap.
- Ensure you aggregate contributions from all employers, where there is more than one.
- Lodge a notice of intent to claim a deduction if you are rolling benefits over to another fund, or commencing a pension.
- Account for contributions that you split with a spouse. The entire contribution counts toward the cap of the person who received the original contributions, not the spouse who receives the split.
So if you are expecting a bonus, and you’re thinking about squireling it away in your super, please make sure you’ve accounted for any contributions already made/or will be made into your funds over the course of the year.
Once the funds go into your super and your concessional contribution cap is exceeded, you can’t then decide you don’t want it in there.