Announced and legislated prior to 30 June 2017, members had to wait an additional 24 months to effectively see the commencement of implementation of “catch up” contributions.
The measure is available to individuals with total superannuation balances (TSB) of less than $500,000, who can increase their concessional contributions cap in the financial year by applying previously unused concessional contributions cap amounts from one or more of the 5 previous financial years.
As this measure started effective 1 July 2018, it is only available for use for individuals commencing the 2019/20 financial year.
An individual has unused concessional contributions cap for a financial year if they did not fully utilise their concessional contributions cap that year.
The amount of the unused concessional contributions cap is the difference between the individual’s concessional contributions and the concessional contributions cap.
The following example is extracted from the Explanatory Memorandum:
Example – Unused concessional contributions cap
In the 2018-19 financial year, Layla’s employer made concessional superannuation guarantee contributions of $10,000 on her behalf to her superannuation fund.Layla did not make any deductible personal superannuation contributions to her fund. The concessional contributions cap for the 2018-19 financial year is $25,000. Layla’s unused concessional contributions cap amount for the 2018-19 financial year is therefore $15,000.
This means that, provided Layla’s total superannuation balance is less than $500,000, she has the ability to make concessional contributions of $40,000 (i.e. the $25,000 cap, plus the unused 2019 contribution of $15,000).
This measure is likely to be most favourable to those individuals looking to top up their super prior to retirement, or in situations where an individual has realised a large capital gain personally and is able to offset this.
Take the example above of Layla. Assume she sells an investment property on 1 February 2020, and makes a capital gain (after discounting) of $90,000. Layla’s employer already contributes $10,000 per annum.
Assuming no other action, Layla is liable for income tax of approximately $33,300 on the gain.
However:
Layla could elect to make personal deductible contributions of $30,000 to bring her total concessional contributions up to $40,000 (i.e. up to the “catch up” threshold). Additionally, Layla could elect to make a concessional contribution of a further $15,000 under a reserving strategy at the end of the financial year.This would allow Layla to claim $45,000 in personal deductible contributions while staying within her concessional cap. She would be able to reduce the tax payable on the gain by $16,650, and while her superannuation fund will pay contributions tax of $6,750, Layla is still $9,900 ahead as a result of the strategy.
For more information, call us on 03 9886 0800 or email us at super@tagfinancial.com.au.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page.