The Australian Tax Office (ATO) has decided to increase some of the key rates and thresholds for people who are wanting to top up their superannuation.

On 1st July 2021, concessional and non-concessional contribution caps and the general transfer balance cap will increase for the first time in four years.

Under the current laws, employers are required pay 9.5 percent of an eligible worker’s earnings into a super account. However, the minimum contribution will rise to 10 percent on July 1 and 12 percent by 2025.

The current 9.5% minimum amount an employer is required to contribute to their employee’s superannuation account is based on the government’s current rules and legislation, which is called the Superannuation Guarantee.

The Superannuation Guarantee is tied to an employee’s salary or remuneration package and is paid on top of an employee’s salary, with compliance governed by the Superannuation Guarantee (Administration) Act 1992 (Cth).

Extra payments from individuals are also encouraged with tax relief.

Concessional contributions are those made into a super fund before tax, including through salary sacrifice arrangements, and are taxed at a rate of 15 per cent in the super fund.

The annual concessional contribution cap will increase from $25,000 to $27,500.

Non-concessional contributions are made into a super fund after tax is paid.

The annual non-concessional contribution cap will also increase on July 1, from $100,000 to $110,000.

An indexed increase in the transfer balance cap will see that rise from $1,600,000 to $1,700,000.

The transfer balance cap is a limit on how much super can be transferred into a tax-free retirement account.

To make sure the superannuation system is fair, the Australian government also places a limit on Superannuation Guarantee payments by an employer on behalf of an employee. This is commonly referred to as the maximum superannuation contribution base. An employer doesn’t have to pay the superannuation guarantee on employee earnings above this base limit. The current base limit is set at $57,090 for the 2020/21 financial year.

If an employee’s income and concessional super contributions surpass $250,000 you are required to pay an additional 15% tax on concessional contributions, known as Division 293 tax. This tax is levied on the excess over the $250,000 threshold, or on your super contributions, of whichever is less.

Tax offset for super contributions on behalf of your spouse

The ATO outlines that if you’re married or have a de facto spouse who is either earning a low income or not working and you make contributions to their super on their behalf, you may be eligible for a tax offset of $540 a year, provided you meet the following criteria:

  • The combined total of your spouse’s assessable income, reportable employer super contributions and total reportable fringe benefits is less than $37,000. (You’ll be entitled to a partial tax offset if your spouse earns between $37,000 and $40,000.)
  • Both you and your spouse must have been Australian residents and living together when the contributions were made.
  • Your spouse must not have exceeded their non-concessional contributions cap for the financial year, nor exceeded their transfer balance cap.

As of the 1st July 2020, the age limit for the spouse receiving the super contributions has been raised from 69 to 74, provided they meet the work test from age 67.