Carry-forward Super Contributions (An important reminder!)

Matt Richardson

Earlier in the year I wrote an article about this topic.  I am finding this continues to be a fantastic opportunity (and is often overlooked) for those taxpayers who:

  • Have a Total Superannuation Balance (TSB) under $500,000;
  • Would like the ability to reduce their taxable income;
  • Would also like to provide for their retirement by making tax-effective contributions to superannuation.

The 2020-21 financial year is now the second year you may be able to contribute “unused” concessional contributions from a prior year.

Any unused concessional contributions (annual limit currently $25,000) from the 2018/19 and 2019/20 financial years and onwards can be used on a rolling basis for up to 5 years!  Any amount not used after 5 years “expires”.

Concessional contributions include:

  • Employer contributions (including contributions made under a salary sacrifice arrangement); and
  • Personal contributions which have been claimed as a tax deduction.

Eligibility Requirements – check your Total Super Balance (TSB)  ***

To take advantage of these rules your Total Super Balance must be under $500,000.  This is the accumulated value of all superannuation accounts in your name as at the most recent 30 June.

If you wish to make a carry forward contribution in the 2020/21 financial year your TSB will be measured as at 30 June 2020.  *** It is critical you check your TSB prior to making a contribution under this measure.

Example 1

Miss B has $200,000 in her super account as at 30 June 2020.  During the 2018-19 year and 2019/20 year she took time off work to care for her child, so there were no concessional contributions made on her behalf during these two financial years.

Miss B is eligible to contribute $75,000 in concessional contributions in the 2020/21 year.

This would suit Miss B’s circumstances if in the 2020/21 year she has a high taxable income such as a share in business income, a large trust distribution, a significant taxable capital gain or investment income.

Example 2

Mr D has $370,000 in his super account.  During the 2018/19 and 2019/20 year the total concessional contributions made to his account was $20,000 ($10,000 each year).

Mr D is eligible to have $55,000 in concessional contributions made to his super account during the 2020/21 year.  This is comprised of $15,000 unused from 2018/19, $15,000 unused from 2019/20 plus $25,000 for the 2020/21 year.

Opportunities – who can benefit?

The original purpose of the legislation was to assist taxpayers with non-standard or interrupted work patterns as a means to boost their retirement savings.  Those that take leave without pay, work part time, or who have “lumpy” income patterns will be ones that benefit the most.

However, there are also opportunities in years where higher than normal taxable incomes are derived (due to unexpected seasonal income, large realised capital gains, etc) where unused concessional contributions can assist with not only minimising your tax burden, but also ensuring you are saving for your retirement.

If you have any queries on how this works, contact the accounting team at Green Taylor Partners.