Super can be a powerful investment vehicle. When leveraged appropriately, it can help individuals and couples accumulate sufficient wealth during their working life to support their targeted lifestyle during retirement.
However, the ability to accumulate wealth inside of super—sufficient or otherwise—is often linked to employment. For example, Super Guarantee contributions made by employers for eligible employees, and the income derived from employment by employees, which is then used to make personal contributions.
Because of this, super as an investment structure, and the accumulation of wealth inside it, can often tend to favour those of us with a continuity of income. For example, individuals who work casual or part-time, take time out of work (eg to raise a family or take a career break/sabbatical), or have ‘lumpy’ income (eg a small business owner), may experience periods where no or limited contributions are made to their super account.
This can have a knock-on effect. For example, time, contributions, returns, and fees can impact an individual’s super account balance come retirement—and their subsequent retirement income (and outcome).
In light of the above, from 1 July 2018, a carry-forward provision has applied for concessional contribution caps. This provision aims to give individuals an opportunity to ‘catch-up’ concessional contributions, if they have the capacity and wish to do so. As a reminder on concessional contributions:
- A concessional contribution refers to a contribution that can be claimed as a tax deduction by the contributor, which can encompass mandatory (including Super Guarantee) and voluntary (including salary sacrifice) employer contributions, as well as personal deductible contributions.
- For the 2021-22 financial year, the annual concessional contributions cap limit is $27,500 (previously $25,000). This cap limit is subject to indexation, but may not increase each year—indexed annually with Average Weekly Ordinary Time Earnings (AWOTE) and rounded down to the nearest $2,500.
With the above in mind, below are some of the finer details relating to the carry-forward provision:
Overview. An individual can carry forward any unused concessional contribution cap amounts on a rolling basis for a period of up to five years. However, amounts not utilised after five years expire.
Commencement date. The first year in which an individual was able to make additional concessional contributions by applying their unused concessional contributions cap amounts was the 2019-20 financial year.
Criteria to qualify (and contribute). An individual must:
- be under age 67, or between age 67 and 74 and meet (or be exempt from) the work test
- have unused concessional contributions cap amounts from one or more of the previous five financial years (commencing from the 2018-19 financial year)
- have a total super balance less than $500,000 immediately preceding the start of the financial year in which they make additional concessional contributions, ie at the end of 30 June of the previous financial year. Please note: Once their total super balance exceeds $500,000, the annual concessional contribution cap will still apply, however, the carry-forward provision will no longer be available for use (unless their total super balance falls below $500,000*).
*For example, due to market movements, spouse contribution splitting, or making withdrawals from super in the form of lump sum or pension payments.
Important consideration. Before an individual proceeds with this provision, it’s important for them to consider seeking professional advice to assess the appropriateness of this provision. For example, an individual with a high income may be subject to Division 293 tax on additional concessional contributions made under this provision, where their income for Division 293 purposes exceeds $250,000.
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