Keeping Track of Your Concessional Contributions
Last Opportunity for Five-Year Catch-Up Contribution Rules
This year marks the final chance for eligible individuals to utilise the five-year catch-up contribution rules for concessional contributions. Trustees who initiated the scheme in its inaugural financial year of 2018–19 must now plan their next steps. Here's what you need to know.
Understanding the Concessional Contributions Cap
The concessional contributions cap represents the maximum amount of before-tax contributions you can add to your superannuation annually without incurring additional taxes.
As of 1 July 2021, the cap is set at $27,500, having increased incrementally with the Average Weekly Ordinary Time Earnings (AWOTE).
Keeping Track of Your Concessional Contributions
Monitor your contributions effectively using ATO online services. It's essential to:
- Stay informed about your concessional contributions cap, including any unused amounts from previous years.
- Monitor your total super balance.
- Keep track of contributions from all sources, including employers and personal contributions.
- Understand payment and reporting timelines, ensuring contributions count towards the appropriate financial year.
Self-Managed Super Fund Members
If you're a member of a self-managed superannuation fund (SMSF), you may have flexibility regarding contribution timing, allowing contributions from one financial year to count towards the next.
Managing Contributions Near the Cap
If you anticipate nearing or exceeding your concessional contributions cap:
- Consider reducing before-tax voluntary contributions.
- Delay personal super contributions to claim deductions in your tax return.
- Explore options to opt out of super guarantee contributions from one or more employers if necessary.
- Apply for adjustments due to special circumstances.
Carry Forward Unused Contribution Cap Amounts
Utilise unused concessional cap amounts from previous years to enhance your contribution caps. To be eligible, ensure:
- Your total super balance is below $500,000 at the previous financial year's end.
- Unused cap amounts are available from up to five previous years, starting from 2018–19.
- Unused cap amounts are applied automatically when you exceed the cap in any year.
Example: Utilising Carry Forward Contributions
This example is referenced directly quoted from the ATO website, and explains the options clearly:
"Sam and his employer have been contributing less than his concessional contributions cap over several years, he has accumulated unused caps he can access for up to 5 years.
In 2021-22, he was both in a financial position and eligible to make additional contributions.
Working out Sam's super contributions cap amounts:
- Contributions from Sam and his employer 2018–19 is $5,000 super guarantee (SG)
- Total Super Balance (TSB) at end of previous financial year is $480,000 and growing
- Unused concessional cap accumulation $25,000 − $5,000 = $20,000.
Option 1: Sam has no extra money to contribute.
- Contributions from Sam and his employer 2019–20 is $3,000 SG
- TSB at end of previous financial year is $490,000 and growing
- Unused concessional cap accumulation is $20,000 + $22,000 ($25,000 − $3,000) = $42,000
Option 2: Sam has no money to contribute.
- Contributions from Sam and his employer 2019–20 is $0
- TSB at end of previous financial year is $505,000
- Unused concessional cap accumulation is $42,000 + $25,000 = $67,000
Option 3: Sam has money to contribute but can’t carry forward the unused cap amounts because his TSB is over $500,000.
- Contributions from Sam and his employer 2021–22 are $10,000 SG + $20,000 salary sacrifice + $15,000 personal contributions = $45,000.
- TSB at end of previous financial year is $490,000. Fund experiences negative earnings leading to a decline in Sam's TSB
- Unused concessional cap accumulation is $67,000 + $27,500 = $94,500
Sam's options:
- Sam has money to contribute because his TSB at 30 June 2021 is now less than $500,000. He can use the unused cap amounts and contribute up to $94,500".
Consequences of Exceeding the Cap
Excess concessional contributions (ECC) are included in your assessable income. ECC are taxed at your marginal rate with a 15% tax offset. Failure to manage ECC could result in significant tax liabilities.
Conclusion
Understanding and managing concessional contributions are critical for optimising retirement savings and minimizing tax liabilities. Stay informed, monitor your contributions diligently, and leverage available strategies to secure your financial future effectively. The ATO provides guidance and support to ensure compliance and mitigate risks associated with contributions management.
Reference: Accessed 8 Feb 2024, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/contributions-and-rollovers/contribution-caps