Concessional contributions

Although the five year rolling catch-up of concessional contributions rule came into effect from 1 July 2018 it is really now that we can start to utilise the benefits.

From 1 July 2018 super fund members with a total super balance below $500,000 can soak up unused concessional contributions caps from prior years. This means that the first year in which this can be accessed is the 2019-20 financial year. Combined with the removal of the 10% rule (read our blog Making Personal Contributions to Super) a great opportunity to reduce your personal tax and boost your super savings arises.

Let’s have a look at an example:

Ted has a super balance as at 30 June 2018 of $325,000. In the 2019 financial year his employer contributed $9,500 to super. He therefore had not used his full cap of $25,000. In 2020 Ted’s employer again contributes $9,500. Ted speaks to his advisor and decides to contribute $15,500 of catch-up concessional contributions from the previous financial year and a further $15,500 for the current financial year. Over the 2019 and 2020 year’s Ted has therefore contributed a total of $50,000 made up of $31,000 of additional personal contributions and $19,000 of employer contributions.

Not only has Ted boosted his super but he reduced his taxable income by $31,000 and has a net tax saving of $6,630. What a great outcome.

Let’s look at some other great ways this new rule can help you.

Marnie wasn’t working during the 2019 and 2020 financial years as she was on maternity leave. She therefore made no concessional contributions to super. Near the end of 2020 Marnie sells her investment property resulting in a net capital gain of $125,000. Marnie speaks to her advisor to see what she can do about reducing her tax. After learning of this new rule Marnie contributes $50,000 to super in June 2020 being the unused cap from 2019 and 2020. The contributions are taxed at 15% but Marnie saves $19,875 in personal tax. Her net tax saving is therefore $12,375. She has also boosted her super despite not contributing over the last 2 years.

Lee works on oil rigs off the coast of WA. Due to the cyclical nature of this work Lee earned no income in 2019 and 2020. In 2021 however Lee worked under a lengthy contract. His salary was $200,000 and his employer contributed $19,000 to super. Lee then decided to contribute an additional lump sum in 2021 of $50,000 (using his unused cap from 2019 and 2020) and claims a personal tax deduction. After considering division 293 (read our blog Division 293 Tax) the net tax saving to Lee is $8,035.

So as you can see there are many situations where we can benefit from this rule. What a fantastic incentive to build your super savings.

Always speak to your advisor before making decisions about super or contact Your Super Specialist here.

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.