Carry forward concessional contributions (also called catch-up contributions) offer the ability to make extra tax-deductible contributions into super. In my experience, people are not aware of this fantastic opportunity to reduce tax, hence this blog article.
Read more: Carry forward concessional contributions
- What are concessional contributions?
- Why do people make concessional contributions?
- What are carry forward concessional contributions?
- Who can use carry forward concessional contributions?
- How to check my carry forward concessional contributions?
- How to really maximise carry forward contributions?
- Warning on carry forward concessional contributions
- Conclusion
What are concessional contributions?
Concessional contributions are superannuation contributions which have been concessionally taxed. Concessional contributions include your employer SG contributions, salary sacrifice, and any personal contributions you claim a tax deduction for.
Why do people make concessional contributions?
If you earn less than $250,000 p/a, then concessional contributions are taxed at 15% (payable by the super fund). This is one of the main reasons many people salary sacrifice ; they incur tax at 15% instead of their personal marginal tax rate.
One challenge people face are the superannuation contribution caps. There is currently a $30,000 annual limit on concessional contributions. So, if you are on an income of $120,000 p/a, your employer would likely make $13,800 in SG contributions (11.5% of your salary), which then leaves a maximum amount of $16,200 which can be salary sacrificed. ($30,000 – $13,800 = $16,200)
For people who would like to salary sacrifice more, or make larger personal concessional contributions, carry forward concessional contributions may save you thousands of dollars in tax.
What are carry forward concessional contributions?
Catch-up contributions were first mentioned in the 2016/17 Federal Budget and came into force on 1 July 2017. Somewhere along the line, the name changed to ‘Carry forward concessional contributions’.
Essentially, from 1 July 2017, any unused concessional cap amounts would be carried forward on a rolling basis over a consecutive five-year period.
What this means is that you potentially have far more than the $30,000 annual concessional cap which can be used. If you haven’t been using the full concessional caps for the previous 5 years, they may be available for you to use now.
Who can use carry forward concessional contributions?
Not everyone can make catch-up contributions. To be eligible, your total superannuation balance must be below $500,000 as at 30th June of the previous financial year.
In addition, you must generally be under 75 to make concessional superannuation contributions. Furthermore, if you are aged 67 to 74 years old (inclusive), you must meet the work test, or work test exemption, to claim a deduction for personal superannuation contributions. The work test is being gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made.
How to check my carry forward concessional contributions?
Fortunately it is very easy to find out your available carry forwards concessional contributions. Simply log in to myGov and select the Australian Tax Office (ATO). Then choose the super heading – information – carry-forward concessional contributions. The image at the top of this blog shows you what this looks like.
The ATO will then display any unused concessional contributions from previous years which available to you.
How to really maximise carry forward contributions?
Most people are hard pressed just to make the maximum concessional contribution in any given financial year, let alone using unused portions from previous years. But when someone has triggered a capital gain from an asset sale, such as an investment property, they should investigate if they have any carry forward contributions available to them.
People do not need to salary sacrifice to make concessional contributions, they can instead make a personal contribution into super, and then submit a ‘notice of Intent to claim a deduction’ form. Hence, people can make a contribution to super, funded by the asset sale, and pay tax at 15% instead of whatever their personal tax rate the capital gain has inflated their taxable income to.
Warning on carry forward concessional contributions
The whole point of any of this is to save tax. In my experience people get confused on how the benefits of salary sacrifice work. The latest tax rates are below:
| Income | Tax rate |
| Up to $18,200 | Nil |
| $18,201 to $45,000 | 16% |
| $45,001 to $135,000 | 30% |
| $135,001 to $190,000 | 37% |
| Above $190,000 | 45% |
Concessional superannuation contributions will have 15% tax taken out by the super fund and sent to the ATO. If you are earning less than $18,200, you have no personal tax, so you wouldn’t make voluntary concessional contributions as you’d incur a 15% tax which you wouldn’t have otherwise. You would be paying more tax then you need to.
If you are earning less than $45,000, then the personal tax rate is 16% and the tax benefit of concessional super contributions is only 1% (not factoring in the medicare levy), so many people would not bother with locking their money up in super (which is a disadvantage to concessional contributions) for such a small tax saving. Following on from this, if your income was $50,000, you could make a concessional contributions into super of $5,000 and save 15% tax on this, but contributing anything more than $5,000 would only save you 1% tax.
Conclusion
Carry forward concessional contributions can be a really valuable method to reduce your tax. It often saves thousands, and can potentially save tens of thousands of dollars in tax. As an independent financial planner, I sell advice, not products; so feel free to reach out if you’d like some advice.
