In this blog, we discuss the carry-forward, unused concessional cap rule and three (3) ways it could be used to maximise your super contributions.
The concessional cap is the limit on how much money you can put into superannuation before tax. At present, the cap amount is $25,000 per financial year and is increasing to $27,500 in the 2021-22 financial year.
Previously any unused portion of that $25,000 was expired or lost. However, the rules changed a couple of years ago and now taxpayers can carry forward the remainder of the amount for up to five financial years, provided their superannuation balance is less than $500,000.
We explain more below, or watch the video from Precision Wealth Management’s Glenn Hilber here: Maximising Your Super Contributions
Concessional Contributions: What are they?
There are several items which are considered concessional contributions.
- Employer contributions, including compulsory contributions, salary sacrifice payments, or any other additional concessional contributions made you your employer
- Personal contributions which are tax deductible
Find out more about concessional contributions on the ATO website here.
Concessional Contributions Cap
Concessional contributions, like those in the above section, are capped at $25,000 per financial year. That cap amount is increasing to $27,500 in the next financial year.
But if your contributions don’t reach that amount, and you super balance is less than $500,000, you can carry forward that remaining leftover amount for up to five financial years.
Learn more about carry-forward unused concessional contributions from the ATO here.
Here’s an example of how it works:
Let’s say your employer made a contribution of $10,000 in both 18/19 and 19/20 financial years and no other contributions were made. As contributions were capped at $25,000 for those two years, that means you have an unused amount of $15,000 for each of those two years. (A total of $30,000 for the two years)
So, under this new rule those unused amounts are carried forward and that means you can contribute an additional $30,000 this year – provided your superannuation balance is less than $500,000.
It’s also important to note that $30,000 amount is on top of your cap for the current financial year. Therefore, if you again received an employer contribution of $10,000 in the 20/21 financial year, there is another left over amount of $15,000. Meaning your carry-forward amount would increase to $45,000.
Who can Benefit from the Carry-Forward, Unused Concessional Cap Rule?
Here are three situations where the rule can be very beneficial when tax planning.
Self-employed people with varying incomes could perhaps withhold some super contributions on low-income years and then get more benefit out of that concessional cap in future years where their income is higher.
Capital gains tax planning: If you’re expecting to sell an asset for a large capital gain in a few years’ time, it might be worthwhile saving up unused portions. Why? Well, if that capital gain is going to push you into a higher marginal tax rate you might get more benefit from the unused contributions in those future years.
If you’ve been putting super contributions on the backburner and neglecting them, the benefits of salary sacrifice haven’t been lost because these unused portions are carried forward.
Maximising Your Super: Carry-Forward Concessional Contributions
Would you like the trusted professionals at Precision Wealth Management to create a personalised plan to maximise your super?
Find our contact details here and arrange an appointment today.
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