A new five year rolling catch-up of concessional contributions rule came into effect from 1 July 2018 and brings with it great opportunities to boost your super and optimise your personal tax position.
From 1 July 2018 super fund members with a balance below $500,000 can soak up unused concessional contributions caps from prior years. 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 2018 financial year his employer contributed $9,500 to super. He therefore had not used his full cap of $25,000. In 2019 Ted’s employer again contributes $9,500. Ted speaks to his advisor and decides to contribute $15,500 of catch-up contributions from the previous financial year and a further $15,500 for the current financial year. Over the 2018 and 2019 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 2018 and 2019 financial year’s as she was on maternity leave. She therefore made no concessional contributions to super. In 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 $75,000 to super in June 2020 being the cap from 2018, 2019 and 2020. The contributions are taxed at 15% but Marnie saves $27,835 in personal tax. Her net tax saving is therefore $16,585. 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 2018 and 2019. In 2020 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 2020 of $50,000 (using his unused cap from 2018 and 2019) and claims a personal tax deduction. After considering division 293 (read our blog YSS & NCA 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.
Contact us now to discuss your situation and how Your Super Specialist can help you!