From 1 July 2021, the concessional and non-concessional contribution caps are set to increase due to indexation for the first time since July 2017.
The concessional contribution cap, originally set at $25,000 from 1 July 2017, is indexed by average weekly ordinary time earnings (AWOTE) in increments of $2,500. Concessional contributions are contributions that are made into your super fund before tax. They are taxed at a rate of 15% in your super fund as opposed to a much higher personal marginal tax rate. They include employer contributions such as superannuation guarantee contributions and salary sacrifice contributions.
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. From 2019, those individuals that have not fully used your $27,500 cap you can use the unused component to make additional contributions. This is called the carry-forward of unused concessional contributions. From 1 July 2018 if you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general concessional contributions cap and make additional concessional contributions for any unused amounts.
The non-concessional cap in 2021–22 will see the standard cap increased from $100,000 to $110,000 from this date. Non-concessional contributions are post tax contributions or additional savings into super where tax is not deducted. They are like any type of regular savings contributions but gain the benefits of the superannuation system. That being, your investment earnings are taxed at just15%, you have a lower capital gains rate, you can invest in other assets ranging from cash, to property, shares and bonds, and upon retirement, changing work patterns and reaching what’s called your preservation age, generally between 55 and 60 you can move the funds to the retirement stage accessing even better tax advantages. At that age you can start drawing down on your super to replace and or supplement your income.
The bring–forward rule allows those under 65 years old to make up to three years worth of non-concessional (after-tax) contributions to their super in a single income year
For clients who have already triggered the bring-forward rule, they won’t be able to make extra non-concessional contributions due to the increased cap during their bring-forward period.
Clients that have previously triggered the non-concessional contributions cap bring-forward rule and who are still in their bring-forward period in 2021–22 will not benefit from the increase in the non-concessional cap until after their bring-forward period expires.
Under the bring-forward rule, a person’s non-concessional cap is based on a multiple of the standard non-concessional cap that applied in the year they triggered the bring-forward rule.