This strategy utilises a member’s unused concessional contribution cap over a rolling 5 year period, 2019/2020 is the first year to implement the strategy.
From 1 July 2019, superannuation funds may receive concessional contributions above a member’s concessional cap of $25,000. The excess contributions are limited to the member’s unused concessional contribution cap for 2018/2019.
For a member to be eligible for the strategy:
- Ensure the member’s total superannuation balance is less than $500,000 on 30 June of the previous financial year, in this case, 2019;
- The member is entitled to receive concessional contributions, i.e. be aged less than 65 years or pass the work test if they are aged 65 to 74; and
- Determine the member has an unused concessional contribution cap, in this case, the 2018/2019 financial year.
Here is an example outlining the strategy.
Sue’s total superannuation balance at 30 June 2019 was $455,000 (made up of her SMSF and a small balance held in her industry fund).
Her employer contributions for 2018/2019 amounted to $12,000. Sue’s unused concessional contribution cap for that year was $13,000 ($25,000 less $12,000).
For the 2019/2020 year, Sue’s employer contributions will amount to $12,000 for that year. Sue will have an unused concessional contribution cap of $13,000 for 2019/2020 plus $13,000 from 2018/2019.
Sue can make a personal concessional contribution of $26,000 for the 2019/2020 financial year in addition to the $12,000 her employer has made. The fund could receive a total of $38,000 for the 2019/2020 year.
|Concessional contributions (Employer)||$12,000||$12,000|
|Total available unused cap||$13,000||$13,000|
|Unused concessional cap amount accrued in the relevant financial year||$13,000||$26,000|
|Superannuation balance 30 June prior year||Not applicable||$455,000|
Note, for Sue to make a personal concessional contribution of $26,000, Sue will need to have sufficient taxable income for her to claim a deduction for the contributions. Failure to do so, will result in the excess of personal concessional contributions over taxable income treated as non deductible and a non concessional contribution.
If Sue, decides to only contribute $15,000 as a personal concessional contribution in 2019/2020, she will utilise all of her unused concessional cap for that year and $2,000 from her 2018/2019 unused cap. The unused 2018/2019 balance of $11,000 ($13,000 less $2,000) can be carried forward for a maximum of only 5 financial years, expiring on 30 June 2024.
Sue may also decide to defer making any personal concessional contributions until a later date thus building up her unused concessional contribution cap over a rolling 5 year period and use when she has additional taxable income or capital gains.
Deferment may, however, result in Sue losing her ability to make additional contributions as her total superannuation balance exceeds $500,000. If her total superannuation balance falls below $500,000 at a later date, Sue is again eligible to apply her unused concessional contributions cap.
In general, the strategy will allow members to make up for concessional contributions not utilised in the past and increase their superannuation balance. It can also minimise their personal income tax position where they may have additional taxable income in an upcoming financial year.
If you would like further information regarding the above strategy, do not hesitate to contact Concise Super on 03 9838 3055.
This information is for general information only and does not constitute financial advice or take into account your personal needs, objectives and financial situation. Before making any decisions, we recommend you seek professional advice.
May 2020 ~ Fabio Salvatore, Concise Super
© Concise Super 2020