Tax deductible contributions made into super are known as concessional contributions and are subject to an annual limit (cap). Concessional contributions include those made by your employer under the super guarantee system, contributions made as part of a salary sacrifice, or personal contributions where you are entitled to claim a tax deduction.
From 1 July 2017, the concessional contributions cap has been reduced to $25,000 for all individuals, regardless of their age. Even individuals aged 50 or more (who were subject to a $35,000 annual concessional contributions cap under the old rules) will now be subject to the lower $25,000 concessional contributions cap.
Additionally, effective from 1 July 2018 – if your superannuation account balance (or combined balances if you have more than one superannuation account) is $500,000 or less at the end of a financial year, then you will have the opportunity to utilise the unused portions of your concessional caps from previous years (up to 5 years worth) in the following financial year, or future years. These are known as catch up concessional contributions.
Carrying forward unused portions of concessional contributions may benefit many individuals, especially those who have had breaks in employment and wish to catch up on previous years.
For example – Jessica has a combined superannuation balance of $200,000 but did not make any concessional contributions in the 2018/2019 financial year as she took time off work to care for her newborn child.
In the 2019/2020 financial year she has the ability to contribute up to $50,000 of concessional contributions into her superannuation account – $25,000 under the annual concessional cap and $25,000 from her unused 2018/2019 cap which has been rolled over.
Catch up concessional contributions can be particularly effective to reduce income tax payable in higher income years – for instance when a capital gain exists following the sale of an asset.
Author: Natasha Woodvine