As part of an employee's remuneration package, employers are required to make regular super guarantee contributions to their employee's superfund under the super rules. However, it is important for high-income earners to be aware that the government sets a quarterly cap on the amount of an employee's income for which their employer must make these contributions.

This cap is called the Maximum Superannuation Contribution Base (MSCB) and it is indexed to average weekly ordinary time earnings (AWOTE), meaning it changes every financial year.

Superannuation Guarantee (SG)

The SG contribution rate is a percentage of your earnings that must be paid by your employer into your superannuation, as set by the government. The current rate for 2023-24 is 11% of your ordinary time earnings, which are the wages you earn for your regular working hours. This rate will gradually increase to 12% by July 1, 2025.

What is the maximum super contributions base for 2023-2024?

For the 2023-24 financial year, the Superannuation Guarantee (SG) contribution rate is 11% of an employee's earnings up to the Maximum Superannuation Contribution Base (MSCB). If an employee's earnings exceed the MSCB for a particular quarter, their employer is not required to make SG contributions for the excess amount.

The Maximum Super Contribution Base (MSCB) for the 2023-24 financial year is $62,270 per quarter ($249,080 per year), which equates to a maximum SG contribution by the employer of $6,849.70 per quarter ($62,270 x 11%). It is important to note that the Maximum Super Contribution Base (MSCB) does not apply to other mandatory contributions, such as those required under an industrial award or enterprise agreement.

Concessional contributions

Concessional contributions are before-tax contributions made to a superannuation fund. These contributions are taxed at a lower (concessional) rate, which depends on the individual's income and their before-tax super contributions.

In general, if an individual's income plus their before-tax super contributions is under $250,000 per year, they will pay a 15% tax rate on their concessional contributions. If your income plus any concessional (before-tax) super contributions totals more htan $250,000 in a particular financial year, you will be liable for an additional tax of 15% on your concessional contributions above this threshold.

Concessional contributions cap

There is a limit on the amount of before-tax income that can be contributed to a superannuation fund in order to receive the concessional tax rate. This cap, which includes contributions made by the employer under the Superannuation Guarantee scheme, is currently set at $27,500 per year (for the 2023-24 tax year).

Carry-forward concessional contributions

If your super balance was under $500,000 on 30 June of the previous financial year and you haven't fully used your annual pre-tax contribution limit over the past five years, you now have a new opportunity. Starting from the 2019-20 financial year, you can contribute beyond the usual cap by using the untapped portions of your cap from those prior years.

Furthermore, you can take advantage of up to four years of unused contributions for the 2022-23 financial year and use the entire five years' worth for the 2023-24 financial year. This mechanism enables individuals with under $500,000 in super to make catch-up contributions using their previously unused contribution limits.

This means that individuals can carry forward their unused concessional contributions for up to 5 years, allowing them to make larger contributions to their superannuation fund in future years.

Excess concessional contribution

If an individual exceeds their concessional contribution cap, they will be required to pay additional tax on the excess contributions at their marginal tax rate, minus the 15% tax that has already been paid. They can choose to leave the excess amount in their superannuation account, in which case it will be counted as non-concessional contributions.

Alternatively, they can opt to withdraw the excess amount from their account. The Australian Taxation Office (ATO) will provide information on these options if a breach of the cap occurs.

Non-concessional contributions

Non-concessional contributions are contributions to a superannuation fund that are not eligible for a tax deduction. They are made with after-tax income and are sometimes referred to as "after-tax contributions."

Non-concessional contributions do not include contributions made by an employer on behalf of the individual (such as salary sacrifice contributions). Non-concessional contributions only refer to personal contributions made by the individual themselves using their after-tax income, and these contributions are not claimed as a tax deduction.

Non-concessional contributions caps

Non-concessional contributions are generally subject to a contribution cap, which limits the amount of non-concessional contributions that can be made in a given financial year. Any contributions made above this cap may be subject to additional taxes.

There are limits on the amount of after-tax contributions that can be made to a superannuation fund, even though these contributions have already been taxed at the individual's normal rate of income tax. The cap for after-tax contributions is currently set at $110,000 per year (for the 2023-24 tax year). It is important to note that:

• If an individual has a superannuation balance of $1.9 million or more at the end of the previous financial year, their non-concessional contribution cap for the current financial year will be zero.
• Once you turn 75, you have a 28-day window after the end of that month to make Non Concessional Personal Contributions to your superfund.
• Individuals under 75 years old (prior to 2022-23 the age was under 67 years; and for 2020-21 financial year and prior years the age was under 65 years) and have a super balance of less than $1.68 million on 1 July 2023 may be able to bring forward the next two years' worth of after-tax contributions and make a lump sum contribution of $330,000 in the current financial year. For example, if an individual makes a $330,000 contribution during the 2022-23 financial year, they will not be able to make any further after-tax contributions until the 2025-26 financial year.
• If the non concessional contributions exceed the cap, the individual will be required to pay a higher tax rate on the excess amount and may also be required to pay a charge.

Excess non-concessional contribution

If you go over the non-concessional contributions cap, you have two options.

1. You can choose to withdraw the excess non-concessional contributions and 85% of the associated earnings. If you decide to withdraw these funds, the full earnings amount will be taxed at your marginal tax rate, including the Medicare levy. However, you will receive a 15% tax offset to account for the tax paid on the earnings while they were in your super fund.
2. If you choose not to withdraw and undergo evaluation for additional non-concessional contributions tax, you should inform the ATO about the specific superannuation fund from which you'd like to release funds to cover the tax obligation.

The associated earnings are an estimated amount of the earnings on the excess non-concessional contributions while they were in your super fund. The rates used to calculate this amount for each financial year are shown in the table below.

Government co-contribution

The co-contribution is a government program designed to increase super savings.

To be eligible for the government co-contribution, an individual must make an eligible non-concessional contribution during the financial year, have a total income (including reportable employer super contributions and reportable fringe benefits) that is less than the higher income threshold for that financial year (the higher income threshold for 2023-2024 is $58,445), have at least 10% of their total income come from eligible employment-related activities or running a business, be under 71 years old at the end of the financial year, not hold an eligible temporary resident visa during the financial year (unless they are a New Zealand citizen or hold a prescribed visa), and lodge an income tax return for the relevant financial year.

In addition, their total superannuation balance (including super and pension interests) must be below $1.9 million at the end of the previous financial year. To qualify, an individual must not have contributed more than their non-concessional contributions cap for the relevant financial year.

The amount of the co-contribution depends on the individual's income and the amount of non-concessional contributions they make.

The co-contribution is not paid if the individual's income is at or above the higher income threshold and a minimum payment of $20 applies, with payments being rounded to the nearest five cent multiple.

Low income superannuation tax offset

As of July 1, 2017, the Australian government has implemented the Low Income Superannuation Tax Offset (LISTO) to replace the Low Income Superannuation Contribution (LISC). The LISTO helps low income earners to build up their superannuation and ensures that they do not pay more tax on their super than on their take-home pay.

If an individual earns $37,000 or less per year, they may be eligible to receive a LISTO contribution to their superannuation account. This contribution is equal to 15% of the total concessional (before-tax) super contributions made by the individual or their employer, up to a maximum of $500 per income year.

Contributions of spouses

A spouse contribution is an after-tax contribution made to a superannuation account in the name of an individual's spouse. This means that the contributor is investing money into their spouse's super account instead of their own. Spouse contributions can be made for a spouse at any time before their 75th birthday, regardless of whether or not they are working. It is not possible to make spouse contributions for a spouse who is 75 years or older. A spouse includes a de facto partner, and both the contributor and the spouse must be Australian residents at the time the contributions are made.

As the contributor, it is possible to receive a tax rebate of up to $540 per financial year for making spouse contributions. The full rebate is available if:

1. The contributor contributes at least $3,000 to their spouse's super account.
2. Their spouse's assessable income and reportable fringe benefits and reportable employer super contributions is less than $37,000 for the year.

If the contributor contributes less than $3,000, the rebate will be equal to 18% of their contributions. If the spouse's relevant income is higher than $37,000, the rebate is gradually reduced until it is no longer available when the spouse's income reaches $40,000.

Downsizer super contributions

If you are 55 years old or older, you may be able to contribute up to $300,000 from the proceeds of the sale of your home (or part of the sale) into your superannuation account. This can be a good way to increase your super and take advantage of the tax benefits associated with super. There are a few things to consider when making a downsizer contribution:

• The contribution will be counted towards your transfer balance cap when you move your super savings into the pension phase, but if you have already reached the $1.9 million cap, your downsizer contribution (along with any other amounts above the cap) can remain in the accumulation phase and will be subject to a 15% tax on investment earnings.
• Making a downsizer contribution can impact your Age Pension benefits, as superannuation is not exempt from the Age Pension test. This means that any money put into super, such as a downsizer contribution, could affect the assets and income tests used to determine your Age Pension eligibility.
• Downsizer contributions are a one-time opportunity, so they cannot be used again for the sale of a second home.

What happens if my employer super contributions exceed the contribution cap?

If an employer makes the required mandated super contributions up to the maximum contribution base, there is no risk of exceeding the concessional contribution cap, unless the employee is planning to increase their super contributions through salary sacrifice or personal concessional contributions. If an employer chooses to make super contributions in excess of the maximum contribution cap, neither the employee nor the employer face any penalties.

However, if the employer's contributions cause the employee to exceed the concessional contribution cap, the employee will receive a notification from the Australian Taxation Office (ATO) stating that their cap has been exceeded and the excess amount will be taxed at their individual marignal tax rate less a 15% tax offset to account for the contributions tax already paid by your super fund.

To assist with the payment of excess concessional contributions, you have the option of withdrawing 85% of the excess amount (excess contributions less contributions tax of 15%).

Super Transfer Balance Cap

The super transfer balance cap is a rule that limits the amount of superannuation that can be transferred from the accumulation phase (where contributions and earnings are taxed at a lower rate) to the tax-free retirement phase. If an individual's super balance at retirement exceeds the current general transfer balance cap of $1.9 million, the excess amount will not receive the same tax-free treatment as other super income streams.

The cap applies to all an individual's retirement accounts. For those who started their retirement income stream on or after 1 July 2021, the transfer balance cap increased to $1.9 million, but may vary from $1.6 to $1.9 million for each person. If the transfer balance cap is exceeded while an individual is still working, they will not be eligible for certain benefits such as the government co-contribution, the tax offset for spouse contributions, and the after-tax contributions cap and bring-forward period.

Re-contribution of COVID early release superannuation amounts

Starting on 1 July 2021, individuals who withdrew their superannuation under the COVID-19 early release program will be able to contribute an amount up to what they received back into their superannuation without this contribution counting towards their non-concessional contribution cap. These contributions can be made between 1 July 2021 and 30 June 2030, but they cannot exceed the amount that was accessed under the COVID-19 early release program and cannot be claimed as a personal superannuation deduction. To make these re-contributions, individuals must notify their fund in an approved form before or at the time of making the contribution.

Could a bonus or overtime pay effect my MSCB?

The Maximum Super Contribution Base (MSCB) is a quarterly income figure that aligns with the requirement for employers to make Superannuation Guarantee (SG) contributions to their employees' super accounts on a quarterly basis. However, for high-income earners with irregular income, this requirement may result in missed SG contributions.

If an employee's income exceeds the MSCB in a particular quarter due to overtime or a bonus, the amount of SG the employer is required to pay is capped, so the employee does not receive an SG contribution on the full amount.

For example, if an employee earns $75,000 and $69,000 in two quarters in the current financial year (2023-24), the maximum SG payable by the employer into their super account in both quarters is capped at $6,849 per quarter ($62,270 * 11%), despite the different income earned in each quarter.

Sydney-Based SMSF Tax Accountants

At Causbrooks, our Sydney-based tax accountants are committed to making the process of lodging your SMSF tax return as smooth as possible. We understand the complexities involved in managing an SMSF and the importance of being compliant. For more detailed information on how we can assist with your SMSF tax returns, visit our SMSF Tax Return page or book a consultation with one of our experts today.

At Causbrooks, our Sydney-based tax accountants are committed to making the process of lodging your SMSF tax return as smooth as possible. We understand the complexities involved in managing an SMSF and the importance of being compliant.

For more detailed information on how we can assist with your SMSF tax returns, visit our SMSF Set Up page or book a consultation with one of our experts today.

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Disclaimer

Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.