From 1 July 2019, new rules were introduced that allow eligible people to claim tax deductions for the unused portion of their super concessional contributions caps from prior years. This brings tax deductions into the current financial year that would have otherwise been in excess of the ordinary annual concessional contribution cap.
A concessional contribution is defined as a contribution to a super fund before tax. This type of contribution is taxed at a flat rate of 15% in your fund.
Concessional contributions can come from several sources: from your employer, from pre-tax salary sacrificed contributions you may elect to make through your employer, and from contributions you make personally and claim a tax deduction. The combined total of these contributions counts towards your concessional contribution cap.
The 2022 financial year concessional contribution cap is $27,500, an increase from the previous financial year’s $25,000.
The new rules give allow you to look back on each financial year from 1 July 2018 to calculate the “unused” portion of your concessional contributions cap in each financial year. You can then “carry forward” and, when desired, “catch up” and claim the unused portion in a later financial year, which can achieve a better tax outcome for that financial year, and maximise the amount you’re able to contribute to super.
You can only claim unused super contributions from previous years if your total super balance is less than $500,000 at 30 June in the financial year before the year when you make catch-up contributions, and unused concessional cap amounts can only be carried forward for a maximum of five years.
What are the benefits?
Making a catch-up contribution is an easy way to boost your super balance at a time when you have the financial resources to do so, while offering significant tax benefits. For example:
- Your work patterns and income may fluctuate from year to year. A tax deduction for super contributions may not be needed in a low income year, but may be useful the following financial year if your income is significantly higher.
- Restricted cash flow may prevent you from making super contributions, but you can make catch-up contributions when your situation improves.
- Your usual income may mean there’s no real tax advantage in making super contributions, but if you sell a large capital asset like shares or a rental property, you could have a significant capital gain. You could then make a catch-up super contribution to reduce your taxable income in the year of that sale.
TIP: Concessional superannuation contributions can be a complex area. It’s best to seek professional advice so you can implement the right strategies for your circumstances and maximise your super savings.