If you have not fully used your concessional cap in a prior financial year, you may be eligible to use these unused carried forward amounts in a later year.
Depending on your circumstances, this could help you to maximise tax-effective super contributions and invest more for retirement.
How does the strategy work?
If your concessional contributions (CCs) in a financial year are below the annual CC cap, you’re able to accrue these unused amounts and carry them forward. This applies to unused cap amounts since 1 July 2018 and can be carried forward for up to five years. This means if you meet certain eligibility rules, you’ll be able to make larger CCs in a later financial year.
This may give you greater flexibility to make larger CCs when your circumstances allow.
This may be helpful if, for example, you have irregular employment income, fluctuating income or have had time out of the workforce.
What’s the benefit?
The amount you contribute is generally taxed at the concessional rate of up to 15%1.
Once contributed, any earnings are also taxed at a concessional rate of 15%, rather than your marginal rate, which could be up to 47%2.
Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super savings.
Key conditions
To be eligible to utilise your carried forward unused CCs by making a catch-up contribution you must:
- have a ‘total superannuation balance’3 below $500,000 on the prior 30 June
- be under 75 and meet the work test rules (or be eligible to apply the work test exemption) if you’re aged 67 to 74, and
- have unused CC cap amounts accrued from one of the five prior financial years (but not before 2018/19).
Accruing unused CC cap amounts
The first financial year you could accrue unused CCs was in 2018/19. Unused CC amounts can be carried forward for up to five years before they expire.
Other key considerations
- It’s important to check your total CCs for the financial year from all sources before adjusting your contribution strategy. CCs include:
- contributions made for you by your employer as well as an estimate of any further employer contributions for the year
- salary sacrifice contributions, and
- personal contributions that you claim a tax deduction for
- For personal deductible contributions, you need to lodge a ‘Notice of Intent’ form and receive an acknowledgement from the super fund before certain timeframes, and also before starting a pension, withdrawal or rollover.
- If you are not eligible to make catch-up CCs, tax penalties apply if you exceed the annual CC cap of $27,500 in FY 2021/22.
- You can’t access super until you meet certain conditions.
