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Super Cap lifted

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The salary sacrificing or “concessional” cap for superannuation is to be increased to $30,000 for the 2014-15 year, from $25,000 now.

The cap is the limit on how much can be salary sacrificed into super in a financial year and includes the compulsory super paid by employers.

Salary sacrificing is a powerful way to save for retirement for most people as the contributions tax on super is 15 per cent compared with your marginal income tax rate. And it is taxed at a low rate once inside super.

The Australian Taxation Office has published the new caps on its website, which includes indexation of the non-concessional (after tax) cap to $180,000 from July 1, from $150,000 now. The non-concessional cap is maintained at six times the concessional cap.

Philip La Greca, head of technical services at AMP SMSF Administration, says it has been years since the concessional cap has been indexed. The cap is tied to wages growth, but the cap can only rise in $5000 increments. The new cap, while welcome, has barely kept pace with inflation, La Greca says.

For those who meet certain age qualifications the cap has already been raised. Those aged 60 and over in the current financial year have a salary sacrifice cap of $35,000 and this higher cap will be expanded from the 2014-15 financial year to cover everyone over 50.

Salary sacrifice caps include the 9.25 per cent compulsory superannuation guarantee, which the government intends to increase, after a two-year pause at 9.25 per cent (for 2014-15 and 2015-16) after which it progressively increases to 12 per cent by 2021.

Be aware that for contributions in excess of the caps there is an additional tax that will have to be paid, says Louise Biti, a director of Strategy Steps, which provides technical support to financial planning firms.

Excess concessional contributions are automatically included by the Tax Office in an individual’s assessable income. Those who make excess concessional contributions are taxed on the contributions at their marginal income tax rate and pay penalty interest, Biti says.