Ask the Expert: Making catch-up super payments using ‘carry forward’

Licensed financial adviser Craig Sankey answers your burning finance questions.

Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND

Question 1: If I have not salary-sacrificed the maximum superannuation limit per annum over recent years, can I add this retrospectively?

Question 2: Hi, I have a question about catch-up concessional contributions. If I were to make a lump sum payment to account for the last three years difference between my employer’s super contributions and $25,000 – would the whole lump sum come off my taxable income this taxation year? Thanks, Shane.

Answer: We have received many questions regarding concessional contributions and the ‘carry forward’ rule, including the above two which we will address here.

Firstly, some background.

What are concessional contributions? The most common are:

  • Employer SG contributions (and any additional employer contributions)
  • Salary sacrifice (pre-tax) contributions
  • Contributions to super that you then claim a tax deduction for via your income tax return.

As super is a highly tax-effective structure, the government does place caps on the amount you can contribute each year without incurring penalties.

For concessional contributions, the cap is $25,000 per financial year for 2020-21 (though an indexation of this cap will likely occur either next year or the following year).

Many younger people get nowhere near the annual cap as they typically have lower salaries.

This means they tend to salary sacrifice smaller amounts while their employers make smaller SG contributions.

However, as people get closer to their planned retirement, they start concentrating on building up their super by making additional contributions.

In recognition of this, the federal government introduced the ‘Carry Forward’ rule.

Since 2018-19, if you have an amount of unused concessional cap, you can carry this forward for up to five years and use it in a future financial year by making ‘catch up’ concessional contributions.

Let’s look at an example.

Let’s assume Tina wants to maximise her concessional contributions in 2020-21 by making either salary-sacrifice contributions or tax-deductible contributions.

Over the previous two financial years she has been well under her concessional cap, having made concessional contributions of $10,000 in 2018-19 and $15,000 in 2019-20.

This means she may be able to make up to $50,000 of concessional contributions in 2020-21, as the following table demonstrates:

However, there are a few things to consider:

  • First, don’t forget to take into account your employer SG contributions. In this example, if Tina’s employer was making a total of $10,000 contributions for 2020-21, then Tina could only make salary-sacrifice or tax-deductible contributions of up to $40,000
  • Second, you can only use the carry-forward provisions if your total super balance was less than $500,000 as at the previous June 30. So, in this example, Tina’s super must be below $500,000 as at June 30,  2020
  • Third, normal super contribution eligibility rules still apply.

You can check your MyGov account to find out the exact amount you can contribute to super using carry forward rules.

You can check your MyGov account to see your prior contribution history amounts and the amount you can contribute under the carry forward rules (provided the ATO is a linked service), as well as your total super balance as at June 30.

And it is highly recommended that you check these numbers prior to contributing.

As this can become quite complex, I would also suggest speaking to your super fund or a financial adviser before proceeding.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings

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