Catch up concessional contribution strategies can allow you to make larger super contributions to increase retirement saving and help manage your tax liabilities.
Currently, the law allows individuals to accumulate unused concessional contributions. The accrued amounts can be carried forward to enable them to be made in excess of the annual cap in future years.
As a refresher, a concessional contribution is one that attracts 15% tax on the way into the fund and is capped at $25,000 pa (think of your employers 9.5% contribution you receive now if your not self-employed).
These contributions may assist you to catch up when you haven’t been working or perhaps worked less in the previous financial year.
Another scenario is that you recently changed jobs for a higher amount or received a pay rise, redundancy, inheritance or even the sale of assets such as shares or a rental property.
Unused amounts from the first of July 2018 can be carried forward for up to 5 years and can be used in 2019/20 and future years when certain conditions are met. Personal deductible and salary sacrificed contributions are eligible catch up concessional contributions.
Are you eligible?
From July 1 2018, the amount of the concessional contributions that can be carried forward is the difference between the annual cap (in 2018 is was $25,000) and the amount of contributions you made in a financial year.
However, there are a few rules to remember.
To make a catch-up concession contribution your total super balance as at 30 June must be less than $500,000 and you also need to be eligible to make a contribution to super.
Let us look at a simple example of a single year catch up contribution
In 2018/19 Kristy’s employer makes super guarantee contributions into her super fund that totals $10,000 and she didn’t make any additional contributions. In 2019/20 she has calculated that with some budget adjustments she will have a surplus she can save and has decided to invest this into super.
So how much concessional contributions can Kristy contribute?
Kristy's super balance at 30 June 2019 is under $500,000.
We have assumed her employer makes the $10,000 employer contribution again in 2019/20, she is firstly able to utilise the unused amount of $15,000 relating to that year's cap . She is also able to make a contribution equal to the amount of the unused portion from the 2018/19 financial year of $15,000.
Kristy can contribute a total of $30,000 by
commencing a salary sacrifice arrangement with her employer,
making a personal deductible contribution or a
combination of the two.
How do you make it happen?
The last step is to make sure you complete the paperwork correctly. We encourage speaking to your financial adviser to assist you but if this isn’t relevant for you will need to complete the application form correctly if you are applying the 2nd option above.
Most forms will have a selection of contributions available. The contribution will be invested initially as a non-concessional contribution so you will need to advise the fund after its made that you wish to claim a personal deduction for that amount which is a “notice of intent to claim”. These forms are usually downloaded from your fund's website. This process tells the funds how to then correctly apply the contribution and taxes to your fund. Ensure the fund acknowledges receipt of your form before you lodge your tax return.
Written by Craig Phillips, Phillips Wealth Partners, www.phillipswp.com.au