Are you taking advantage of carry forward concessional contributions this financial year?

17 June 2020

With June 30 fast approaching, it is critically important you understand the contributions caps and potential strategies that could be available to help maximise your superannuation balance.

Recently, we wrote about some superannuation strategies individuals could consider to help improve their financial outcomes.

Today, I want to provide more information on how the concessional contributions cap works and a potential strategy to help maximise your super balance and possibly reduce your personal tax at the same time. This strategy, called carry forward contributions, can be used with all types of superannuation funds, including Self-Managed Super Funds (SMSF).

Concessional contributions

The most common types of concessional contributions (before tax) include employer contributions, such as compulsory super guarantee (SGC) and salary sacrifice contributions. In addition, individuals can also make personal contributions (after tax) for which a tax deduction can be claimed.

The current concessional super contribution limit (or “cap”) is $25,000 for all individuals up to age 75. Individuals need to pass a work test if over age 65.

Superannuation contributions are taxed at between 15% to 30% compared to the typical personal income tax rates of between 34.5% to 47%.

Carry-forward contributions

From 1 July 2018, the government introduced new rules that allow eligible super fund members to utilise any of their unused concessional contributions limit (or cap) on a rolling basis for five years, subject to meeting the eligibility criteria.

If you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the general $25,000 concessional contribution cap and make additional concessional contributions for any unused cap amounts. This includes the potential to claim a tax deduction for amounts greater than $25,000.

The 2019/20 financial year is the first year available to carry forward unused concessional contributions. Unused amounts can be carried forward for a maximum of five years, after which they will expire.

Example of carrying forward concessional contributions

Silvia received superannuation guarantee contributions of $6,300 during the 2018/19 financial year and her total superannuation balance was $350,000 as at 30 June 2019.

In the 2019/20 year, Silvia’s concessional contribution cap is $25,000 plus the unused amount of $18,700 from the 2018/19 year ($25,000-$6,300=$18,700). This brings Silvia’s total cap to $43,700 for the 2019/20 year.

In the 2019/20 financial year, Silvia receives $6,300 in super guarantee contributions again. This means Silvia is eligible to make additional concessional contributions of $37,400 ($43,700-$6,300) in the 2019/20 financial year.

Silvia can make the extra concessional contribution in two ways:

  1. An additional salary sacrifice.
  2. A personal concessional contribution for which she can claim a tax deduction in her personal tax return.

If you would like more information on concessional contribution caps and/or carry forward contributions, please contact the SMSF Team or speak to your Findex adviser.

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