Averaging your Future Tax Deductible Superannuation Contributions

The concessional contributions cap for 2017-18 is $25,000 per individual per financial year.

From 1 July 2017 there is only one cap that applies to individuals of any age.

What is a concessional contribution?

A concessional contribution is generally a super contribution to a complying super fund for which 15 per cent contributions tax is taken out when it is contributed. It is called a concessional contribution as the tax rate is typically less than the marginal rates of tax.

The main examples of concessional contributions are as follows:

  1. Employer contributions or superannuation guarantee.
  2. Salary sacrifice contributions.
  3. Personal contributions for which a person claims a tax deduction.

What’s Changing?

For the 2019-20 and later financial years, your concessional contributions cap may be increased if you are eligible for concessional contributions carry forward. Essentially you can average your contributions over five years so that the total over a five-year rolling period does not exceed $125,000.

The concessional contributions cap applies to the individual. For example, if a member has multiple employers or multiple superannuation funds, contributions from all employers and funds will be totalled to count against the member's concessional cap.

Concessional contributions carry forward

Individuals with a total superannuation balance below $500,000 can carry forward any unused concessional contributions cap amounts that accrue from 1 July 2018 onwards, for up to five financial years. This allows eligible individuals who do not use all of their concessional cap in a particular financial year, to carry forward their unused concessional cap amounts to future years.

This change may assist an individual particularly if they have had a “tight” year from a cash flow perspective when they would usually try to contribute to the maximum limit.

This new legislation is relevant to all individuals who can contribute to super - and encourages employed persons to make additional lump sum tax deductible contributions. This ability was previously limited to self-employed persons only.

Eligibility

To be eligible to make catch-up concessional contributions in a year, an individual must meet all of the following conditions:

  • A 'total super balance' of less than $500,000 as at 30 June at the end of the financial year immediately preceding the financial year in which the concessional contribution is to be made. This includes additional superannuation funds that an individual may have.
     
  • Have previously not used all of their $25,000 concessional contributions cap in one or more of the five financial years preceding the year in which the concessional contribution is made.

Application

If an individual is eligible to make catch up contributions they can add any previously unused concessional cap amounts from the previous five financial years to their current year's concessional cap.

Any unused concessional contributions cap amount is applied in order from the earliest year to the most recent year.

Any unused concessional contributions cap amount that is not applied after five financial years can no longer be carried forward.

Examples of unused concessional cap carry-forward:

2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Concessional contributions $10,000 $10,000 $0 $35,000 $25,000 $25,000 $28,000
Unused general CC cap for year $15,000 $15,000 $25,000 $0 $0 $0 $0
Unused CC carry-forward amount applied N/A $0 $0 $10,000 $0 $0 $0
Cumulative available unused CC cap amount remaining for that year $15,000 $30,000 $55,000 $45,000 $45,000 $45,000 $37,000*

*The remaining unapplied $5,000 from 2018-19 is no longer available, as it wasn't within the past five years, and $3,000 has been applied in current year from 2019-20’ $45,000 - $5,000 - $3,000 = 37,000.

Note: The above example assumes the basic concessional contributions cap remains at $25,000 and the individual's total superannuation balance is less than $500k at 30 June 2021 and 30 June 2024.

Brett Ricchini – Adviser, Financial Planning