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Carry it Forward – Boost three years worth of super contributions

This article first appeared in The West Australian, Your Money, 3 May 2021
By Raymond Pecotic, Managing Director, Empire Financial Group

The financial uncertainty created by COVID-related lockdowns last year — the drop in hours, earnings and profits for many — and the preference to keep cash available for emergencies meant many people opted not to maximise their superannuation contributions in the previous financial year, and for a large part of this one, too.

Previously, any unused tax-deductible contributions were forfeited. It was a case of use it or lose it. However, since last financial year, eligible individuals can now carry forward these unused concessional contributions for a period of five years.

As this legislation was introduced in 2019-20, the first year from which unused contributions can be carried forward is the 2018-19 period, meaning that up to three years of unpaid contributions could be paid and claimed as a 21 financial year, your superannuation balance would have needed to be under $500,000 as at June 30, 2020.

Let’s say, for example, that you met the required age criteria, had a $450,000 balance in your super fund as at June 30 last year, and you had a salary of $100,000 and only your employer superannuation guarantee contributions of 9.5 per cent had been made in this financial year, as well as the preceding two.

At $9500 a year in contributions, there is an unused cap of $15,500 for each of those financial years. It means that this financial year, you could make total contributions of up to $56,000 — this financial tax deduction before June 30 this year. Currently, the cap for tax-deductible — or concessional — contributions is $25,000 a year, though this is set to increase to $27,500 from the new financial year starting July 1.

To qualify, you need to meet the usual contribution eligibility criteria such as being under age 67, or being aged over 67 but under 75 and satisfying the work test. Additionally, to access carry-forward concessional contributions, your total superannuation balance must be less than $500,000 as at June 30 the previous financial year.

So if you want to take advantage of this in the 2020-year’s $25,000 cap, plus the top-up of the previous two years. These contributions can be made either as a salary sacrifice, or as a personal deductible contribution.

This is a very powerful strategy for those who may have held off locking away additional contributions due to financial uncertainty but now feel more comfortable in the job or business security.

It’s also very useful for those who have had a considerable surge in taxable income, or who may have triggered a capital gain and are looking for ways to offset the tax bill. The ability to carry forward unused concessional contributions will become all the more effective with time when we can use the full five years of carry forward, and concessional contribution caps increase.