From 1 July this year, the maximum superannuation contributions you can make without incurring penalty tax will be $25,000.  It is important to realise this limit includes your employer Superannuation Guarantee Contributions (the 9% mandated contributions) plus any additional contributions made to superannuation from your pre-tax salary.  Such contributions are referred to as Concessional Contributions.

If you exceed the new $25,000 contribution cap, your contributions in excess of the cap would be taxed an additional 31.5% on top of the normal 15% tax on contributions.  This means that tax on the excess is levied at 46.5%, and the excess amount is also treated as an after-tax contribution…or technically speaking a Non-Concessional Contribution.

So what do you need to do?

If you’re putting extra into superannuation, the first step is to have a look at how much is currently going into your superannuation fund from your pre-tax salary and your employer.  If it is going to add up to more than $25,000 in a financial year, then you will have to reduce it. 

For those that earn more than $277,778 across more than one employer (many health professionals find themselves in this situation), there is not much you can do about exceeding the new contribution cap.  At this income level, the mandated 9% contributions will take you over the new limit of $25,000.  If you are in this category, care needs to be taken with any additional after-tax contributions to ensure you don’t breach the $150,000 after-tax contribution cap.  My suggestion is to speak to your adviser for detailed guidance on your superannuation contribution strategy.

Don’t forget if you have nominated for any bonus you receive to go straight into superannuation pre-tax, you might need to review that election.

If you do have to reduce your salary sacrifice, the next step is to consider alternative asset accumulation strategies with your increased after-tax salary.  Strategies might include repaying non-tax deductible debt such as a home loan, or starting a new savings plan. 

In any event, you should use this  opportunity to consult your adviser and revisit your retirement goals and strategies to make sure you’re on track and ready for the coming changes.