Introduction
Superannuation contributions are a key strategy for building wealth and securing financial stability in retirement. For small business owners and individuals looking to maximise their super contributions, understanding the concessional and non-concessional contribution caps is essential. This guide outlines strategies for leveraging these caps, including the small business CGT concessions, salary sacrifice arrangements, and personal deductible contributions.
Understanding Contribution Caps
Concessional Contributions
Concessional contributions are contributions made to superannuation that are taxed at a concessional rate of 15%. These include employer Superannuation Guarantee (SG) contributions, salary sacrifice contributions, and personal tax-deductible contributions. The annual concessional cap for the 2023/24 financial year is $27,500.
Non-Concessional Contributions
Non-concessional contributions are made from after-tax income and are not subject to the 15% superannuation contributions tax. The annual cap for non-concessional contributions is $110,000, but individuals under the age of 75 may be able to use the bring-forward rule to contribute up to $330,000 over three years, depending on their total super balance.
Small Business CGT Concessions
For small business owners selling business assets, capital gains tax (CGT) concessions provide an opportunity to maximise super contributions. The two key concessions are:
1. 15-Year Exemption: If a business owner has owned an active asset for at least 15 years and is retiring or permanently incapacitated, they may be exempt from CGT on the sale proceeds. These proceeds can be contributed to super using the CGT cap (currently $1.65 million for 2022/23).
2. Retirement Exemption: Small business owners can exempt up to $500,000 in capital gains from CGT over their lifetime. If under 55, these amounts must be contributed to super.
Maximising Super Contributions: Key Strategies
Salary Sacrifice Arrangements
Salary sacrificing to super is a tax-effective strategy where an employee elects to forgo a portion of their pre-tax salary in exchange for additional employer super contributions. This can reduce taxable income and boost super savings within the concessional cap.
Personal Deductible Contributions
Individuals can make voluntary contributions to super and claim a tax deduction, provided they meet eligibility requirements. This is particularly beneficial for self-employed individuals or those who have received a financial windfall and wish to reduce taxable income.
Final Thoughts
Navigating superannuation contributions requires careful planning to ensure compliance with contribution caps while maximising retirement savings. Small business owners, employees, and self-employed individuals should consider how concessional and non-concessional contributions fit into their broader financial strategy. Seeking professional financial advice is recommended to optimise contributions and leverage available concessions.