The concessional contribution limit is $25,000 for the current financial year (2019-2020).
There is a new law – for contributions made since 1 July 2018 – that allows you to use up any ‘’unused’’ amount from the previous financial year’s (2018-2019) $25,000 limit.
Stacey’s employer’s super contributions for the current financial year, and the previous financial year, were $10,000. Stacey sells some shares and has a $30,000 capital gain in the current financial year – which would usually result in a significant tax liability for her.
To reduce her taxable income, she makes a personal deductible contribution of $30,000 before 30 June. This contribution fully utilises the remaining limit of $15,000 in the current financial year, along with $15,000 of the limit which she did not use in the 2018-2019 financial year. The large tax deduction of $30,000 effectively wipes her capital gains tax liability in the current financial year (although the contributions will get taxed at 15% on entry to the super fund).
To be eligible to effectively increase their 2019-2020 concessional contributions cap beyond $25,000, a member must:
- have unused concessional contributions cap space from 2018-19 and
- make concessional contributions in 2019-20 exceeding $25,000 and
- have a total super balance at 30 June 2019 less than $500,000
The way to find out your ‘unused’ balance from the last financial year is to log into your myGov account, go into the ATO section, click on ’Super’, then ’Concessional contributions’ – that will show you how much of the $25,000 you used (and left ‘unused’) last financial year.
Under the new laws, any unused amounts will be able to be carried forward for up to 5 financial years in the future (as long as your member balance is below $500,000 in the previous year) enabling members to ‘catch up’ with super contributions and fully benefit from the annual $25,000 concessional contribution limit. Receiving an inheritance, or selling an asset such as an investment property, may present opportunities to add a lump sum to your super balance, while providing opportunities to reduce your tax.
As the law only took effect from 1 July 2018, at this stage you can’t go back 5 years to get a much bigger ‘unused’ amount.
Carry forward concessional contributions will open the door on a range of strategies – including making large deductible contributions in a particular financial year to reduce the tax payable on a one-off lump sum such as a capital gain (from asset sales), or a large trust distribution or employer termination payment (golden handshake).
Let us know if you have any questions or require assistance with any last-minute super contributions.
Disclaimer: The information in this email is general advice only and has not taken into account your personal circumstances. Please seek personalised advice prior to implementing any additional contributions.