The previously announced changes to super now take affect from the 2018-19 financial year, whereby individuals can carry forward any unused amounts in relation to the concessional (before-tax) contribution cap of $25,000, for up to five years. However, to be eligible you must have a total superannuation balance below $500,000 (if there are multiple accounts, the balance of all super accounts combined).
The 2018-19 financial year is the first year unused contributions can start to accrue, with the 2019-20 financial year the first year in which the catch up payment can be used.
For example, if only $5,000 was contributed into super (either from an employer or business) in the 2018-19 financial year, in the next 2019-20 financial year a total of $45,000 (the $25,000 cap for FY19-20 + $20,000 unused from the FY18-19) could be made as a tax-deductible contribution.
Or, if no before-tax contributions were made for either the 2018-19 and 2019-20 financial years, in the 2020-21 financial year a total of $75,000 could be contributed to super as a tax deduction ($25,000 for each of the 3 financial years)
As a result, the catch-up contributions can be an attractive strategy to build retirement savings and/or reduce taxable income for individuals in scenarios such as the following:
- Mothers/fathers who have been on parental leave so have not been utilising their deductible superannuation contribution caps.
- Business owners and farmers where taxable incomes are inconsistent and vary greatly from year to year.
- Individuals inheriting taxable income from an estate (which may push you into a higher marginal tax bracket)
- Individuals who have made a large capital gain on property or shares (using the tax deduction to offset the additional income).
- Receiving a pay rise or bonus which may push you into a higher marginal tax bracket
Additionally, where capital gains are anticipated in a particular financial year in the future (i.e. targeting to sell an investment property at a specific time), strategic tax planning could mean holding off on making additional before-tax contributions in order to build up the accrued amount to use in that particular financial year. Spouse contribution splitting (where a portion of one spouse’s contributions are transferred to the other) may also be useful in allowing a particular individual to accrue a catch-up amount where a capital gain is only one individual's name.
Work with your financial adviser to map out how to achieve this strategy, if you need assistance contact us here.
This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from your financial planner who can consider if the strategies and products are right for you. For more information contact Altitude Advisers on (07) 3209 2300.