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Unused carry-forward concessional contributions
Article

Unused carry-forward concessional contributions

The carry-forward concessional contribution provision allows individuals to take advantage of unused concessional contribution space from prior financial years. These rules provide flexibility around the timing of contributions to match year-to-year changes in cash flow, as well as the ability to manage taxation outcomes each financial year.

In this article we will explain how the provisions work, provide an example of how they can be used and outline the key considerations.

Eligibility

The primary eligibility criteria to use carry-forward provisions are:

  1. The unused concessional cap space is from one of the previous five financial years.
  2. Only accrued unused concessional cap amounts since 1 July 2018 can be carried forward*.
  3. The member must be eligible to make concessional contributions, including the age-based limitations.
  4. The member’s total super balance** must be less than $500,000 at the end of 30 June of the previous financial year.
* This means that the full five-year carry-forward period will only be available from the financial year 2023/24 onward.
** Total super balance includes all your superannuation interests, such as pension benefits and benefits across multiple funds.

Case study 1

This example illustrates how the carry-forward concessional cap increases each financial year by the unused amount from the previous financial year.

Financial year 2018/19 2019/20 2020/21 2021/22
Concessional cap* $25,000 $25,000 $25,000 $27,500
Carry-forward cap** $0 $36,000 $46,000 $57,500
Contributions*** $14,000 $15,000 $16,000
Unused amount $11,000 $10,000 $9,000
*Cap refers to the concessional cap for the corresponding financial year.
**Carry-forward cap is the maximum concessional contribution the individual could have made in that financial year using the carry-forward provision.
***Contributions is the actual concessional contribution made by the individual in this example.

Outcome: In this example we see that in the FY2021/22, the individual could make a concessional contribution of up to $57,500. This is the concessional cap of $27,500 plus the unused amount from each of the prior financial years.

Opportunity

Cash flow: The increased cap of $57,500 could be beneficial if the individual has excess cash flow in FY2021/22 that they wish to use to boost their superannuation savings. Receiving a bonus, business dividend, sale of an asset or inheritance are common examples that lead to higher than normal cash flow.

Where the increased cash flow is known in advance, the individual could consider making only compulsory concessional contributions in the financial years leading up to the year where cash flow is expected to increase.

Taxation: Voluntary concessional contributions will typically reduce an individual‘s taxable income during the financial year that the contribution is made. This means it may be advantageous to use the carry-forward concessional contribution cap in years where taxable income is higher. This can occur when an asset is sold, such as an investment property, managed fund or shares. The capital gain on these assets are added to an individual’s taxable income in the year that the gain was crystallised, increasing total tax payable. The concessional contribution reduces taxable income, providing an offset to the crystallised gain.

Case study 2

Expanding on the first case study, we will now assume:

  • An individual has made the contributions outlined in the first case study (the ‘Contributions’ row in the table above).
  • It is FY2021/22 and the individual has a carry-forward concessional cap of $57,500.
  • The individual receives superannuation guarantee of $17,000 during FY2021/22.
  • The individual sells an asset held for more than 12 months and crystallises a capital gain of $100,000.
  • The individual’s marginal tax rate is 39%, including the Medicare levy.

This person has the option of using the carry-forward concessional cap to make a personal deductible contribution of up to $40,500. This is the carry-forward cap of $57,500 less the $17,000 of superannuation guarantee.

Capital gain: $100,000
General CGT discount: $50,000
Taxable income before contribution: $50,000
Personal deductible contribution: $40,500
Taxable income after contribution: $9,500

Outcome: By reducing their taxable income, this person has reduced the tax they pay by $15,795.

Important considerations

While we have not gone into full detail on each point below, the following are important to be aware of before using the carry-forward concessional cap:

  • Concessional contributions are first allocated to the current year’s contribution cap, then unused cap space is used on a first accrued, first used basis (i.e. the oldest unused cap space).
  • Concessional contributions are taxed at 15% in the super fund.
  • An additional 15% tax applies to concessional contributions made by individuals who earn more than $250,000 in a financial year.
  • You can check your available carry-forward cap space in your MyGov account or via your accountant.
  • Superannuation Guarantee, salary sacrifice and personal deductible contributions will all count toward the concessional cap.
  • No ‘election’ is required, the carry-forward cap is automatically applied.
  • This strategy may not be tax effective for those with insufficient taxable income.
  • If an individual exceeds the $500,000 total super balance rule, prior year unused concessional cap space cannot be used.
  • When making a personal deductible contribution (s290):
    • The ‘Notice of intent to claim or vary a deduction for personal super contributions’ must be lodged with the ATO.
    • The super fund must continue to hold the contribution in accumulation phase.
    • The notice must be submitted before lodging the following year’s tax return.
    • The claim can be denied if taxable income is reduced below $0, which means the contribution would count toward the non-concessional contribution cap.

Conclusion

The carry-forward provision provides flexibility, which can be used to manage taxation and to take advantage of peaks and troughs in cash flow. Certain conditions do need to be met to be eligible and we encourage readers to seek advice from their financial adviser before making superannuation contributions.

Liability limited by a scheme approved under Professional Standards Legislation. Any advice included in this article is general only and has been prepared without taking into account your objectives, financial situations or needs. Before acting on the advice you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs. You should also obtain a copy of and consider the Product Disclosure Statement for any financial product mentioned before making any decisions. Past performance is not a reliable indicator of future performance. Advisors at Pitcher Partners Sydney Wealth Management are authorised representatives of Pitcher Partners Sydney Wealth Management Pty Ltd, AFS number 336950.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.
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