This is the last year to use unused carry-forward deductible superannuation contributions (also known as concessional contributions) accrued in the 2018/19 financial year. With Stage 3 tax cuts on the horizon, now is a great time to think about using carry-forward concessional contributions.

What are carry-forward deductible superannuation contributions?

Each year, individuals can make personal deductible superannuation contributions where they gain the ability to claim a tax deduction on contribution made. This is subject to the annual concessional contribution cap (currently $27,500 for the 2023/24 financial year). Employer superannuation guarantee contributions, salary sacrifice contributions and personal deductible contributions all count towards the annual cap.

Unused concessional contributions can be carried forward to future years, presenting a valuable opportunity for eligible individuals to catch up on unused deductible contributions.

An individual will continue to accrue unused amounts and carry them forward on a five-year rolling basis. This means that any unused cap amounts from 1 July 2018 can be carried forward and utilized in future financial years, provided certain conditions are met.

Are you eligible?

To be eligible, an individual’s total superannuation balance (TSB) must be below $500,000 on 30 June of the previous financial year. Eligibility also requires satisfying the work test or work test exemption for personal tax-deductible contributions from age 67. Please refer to the ATO website for more details.

Making the Most of Catch-Up Contributions

The 2023/24 financial year represents the final opportunity to utilize any unused carry-forward deductible contributions from the 2018/19 year. It’s crucial to note that unused amounts remaining for 2018/19 will be forfeited if not utilized by 30 June 2024.

 

Case Study

Let’s consider an example of how previous years catch up contributions can be utilised now.

 

Joe has received $10,000 in superannuation guarantee contributions from his employer annually for the past five years. Joe has not made any additional contributions to superannuation. From 1 July 2018, he has accrued unused concessional cap amounts and will carry forward each amount to be used in the subsequent five financial years.

 

As our table shows, in the 2023/24 financial year, Joe has accrued $80,000 worth of carry forward contribution cap. Joe can choose to use all or part of this carry forward contribution cap in the current financial year.

 

 

Now let’s assume Joe wishes to make a personal deductible contribution to super of $32,500 in the 2023/24 financial year. Together with his employer superannuation contribution of $10,000, Joe’s total annual deductible contributions counted against the cap will be $42,500.
 

Joe’s annual cap for the 2023/24 financial year ($27,500) will be exhausted first. The remaining $15,000 will then reduce Joe’s unused concessional contribution cap from the earliest financial year (i.e. Joe will fully utilise the unused amount of $15,000 accrued and carried forward from 2018/19).
 

If Joe fails to make any catch up concessional contribution in the 2023/24 financial year his 2018/2019 carry forward unused cap of $15,000 will be forfeited.

 

Let’s then assume in the 2024/25 financial year, Joe wishes to contribute $55,000 on top of the regular employer superannuation contribution of $10,000. The caps used for these contributions are:

• $27,500 for 2024/25
• $15,000 carry-forward from 2019/20 and 2020/21, and
• $7,500 carry-forward from 2021/22.

 

Maximizing Your Super Contributions: Key Strategies to Consider

• Leveraging the Work Test Exemption

  Learn how individuals retiring at 67 can take advantage of the work test exemption to make personal tax-deductible super contributions, even after ceasing full-time employment.

• Spouse Contributions Splitting

  Discover the benefits of splitting deductible contributions, including catch-up deductible contributions, to a spouse’s account. This can help manage Transfer Balance Cap limits, facilitate earlier access to super, and optimize Age Pension benefits.

• Stage 3 Tax Cuts

  Depending on your marginal tax rate, tax savings on deductible contributions made in the 2023/24 financial year may be greater than in subsequent years. See our article “Understanding Superannuation Updates: Annual Caps & Deductible Contributions” for more information.

• Timing of Contributions

  There are a range of factors that should be considered when making personal deductible contributions. A financial adviser can assist in determining the best timing for making catch up concessional contributions after they have considered your financial situation, goals, and objectives.

• Double deductions (SMSFs)

  In some cases, members of a Self-Managed Superannuation Fund (SMSF) can make a personal contribution, claim the deduction in one financial year, and have the contribution counted against the following year’s concessional contribution cap. This strategy allows for an increased deduction amount in any given financial year. However, it’s important to note that personal contributions to an SMSF must be allocated to a member’s account within 28 days after the end of the month following the contribution. For example, if a contribution is made on 1 June, it must be allocated to a member’s account before 28 July. Despite this timing requirement, the member can still claim a tax deduction for their personal super contribution in the year it was made.

In conclusion, catch-up deductible contributions offer a strategic tool for optimizing superannuation savings. As the 2023/24 financial year represents the final opportunity for unused carry-forward contributions from 2018/19, individuals are encouraged to explore this avenue and consult with financial advisors for personalized guidance.

Don’t miss out on this unique opportunity to boost your superannuation savings and optimize your financial future. Contact Scott Martin, Financial Adviser and Director of LZR Advisory if you wish to understand how catch-up contributions can benefit you.