Superannuation contribution caps are low and the penalty tax for exceeding the caps is high. It is extremely important to keep track of how much you have contributed and how close you are to the caps to avoid being hit with a hefty penalty.
There are two classes of contributions: those you take as a tax deduction (concessional) and those you do not take as a deduction (non-concessional).
Concessional Contributions
Employers and self-employed people have a super contribution cap of $25,000 for tax deductible contributions in the 2011/2012 financial year.
The exception is for people over 50 years old – their super contribution cap is $50,000. This higher cap was set to expire, but now it appears it will be extended for people with a fund balance under $500,000. This higher contribution cap enables people who are closer to retirement to accelerate their retirement saving with a significant tax advantage.
If you are getting close to your super contribution cap limits, check with your Fund to see what payments have been allotted to you for this financial year. If your June payment is received in July, it will be counted towards your cap for next year, maximizing your savings and saving you significant penalty.
Non-concessional Contributions
The superannuation contribution cap on these contributions is much higher: the 2011/2012 limit is $150,000. Non-concessional contributions are personal contributions which you do not claim an income tax deduction. People under 65, however, may be able to contribute even more by bringing forward contribution caps for up to three years into the current year, raising their super contribution cap for these payments to $450,000.