BACKGROUND
From 1 July 2019, if you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you may be entitled to contribute more than the concessional contribution cap and make additional concessional contributions for any unused amounts from previous years going back to 2018-19.
The first year you will be entitled to carry forward unused amounts is the 2019–20 financial year. Unused amounts are available for a maximum of five years, after this period any unused amounts will expire.
This can be utilised if you:
May wish to boost your superannuation balance.
May wish to defer a deductible contribution to a year in which you expect to have additional taxable income which may result in a higher marginal tax rate applying (e.g. capital gain event).
Example:
You earn an annual salary of $100,000 (excluding your employee super contribution). Your employer pays your employee super of $9,500 each year.
In the 2023–24 financial year, you make a gross capital gain of $300,000 (taxable capital gain $150,000 after applying the CGT discount) and have less than $500,000 in superannuation as at 30 June 2023.
We can then consider using the carry forward rule to make additional personal deductible contributions in 2023–24.
Without the carry forward rule, you can make a personal deductible contribution in 2023–24 of only $15,500 without exceeding the concessional contribution cap; with the carry forward rule this can be increased to $93,000, creating a tax saving of $34,585.
| Without Carry Forward Rule | With Carry Forward Rule |
Income - Salary | $100,000 | $100,000 |
Discount - Capital Gain | $150,000 | $150,000 |
Personal Deductible Contributions | $(15,500) | $(15,500) |
Taxable Income | $234,500 | $157,000 |
Tax on Taxable Income | $83,446 | $48,861 |
Tax Savings | | $34,585 |
Notes: Concessional contribution can only be made by, or on behalf of, an individual who is eligible to have CC. They must:
be aged less than 65 years; or
pass the ‘work test’ if they are aged 65 to 74 years (an exception applies from 1 July 2019 for individuals who have a total superannuation balance of less than $300,000);
have sufficient taxable income if they intend to claim the CC as a deduction against their taxable income.
Believe it or not, we have kept the above as simple as possible as the superannuation rules are incredibly complex! Please contact us to discuss your personal circumstances with regards to your eligibility to the above.
General advice warning - all financial/tax strategies and information provided are general advice only which does not take into consideration any of your personal circumstances.