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Are you aware of the changes to concessional contributions as of this financial year? Altitude Advisory’s Edward Allan discusses all you need to know so you are prepared before this year’s tax time.
It was decided that from 1 July 2018, individuals that do not use their $25,000 concessional contribution cap will be eligible to make ‘catch up’ contributions towards their superannuation fund in the following year providing that they meet the requirements. This financial year (2018/19) is the first year that unused cap amounts from concessional contributions will be carried forward and these amounts can be used from 1 July 2019. Unused concessional contributions can carry forward into the next five financial years, provided the eligibility requirements are met.
Who will benefit from carry-forward concessional contributions?
The scheme will benefit individuals with smaller superannuation balances who cannot use all of the $25,000 concessional contribution cap in a financial year. This scheme targets individuals with irregular incomes such as part-time workers or those who receive large lump-sum payments (farmers, small business owners, etc) and grants the ability and flexibility to ‘catch up’ so they can make additional concessional contributions.
Are you eligible?
To be eligible for the additional concessional contributions, the following are required:
What does this mean in practice?
As of the 2018-19 financial year, an individual who does not reach the concessional cap for a year can carry forward the unused amount. After 5 years, the ‘catch up’ amount expires and will no longer be available for the individual to continue to use.
The table below provides an example of how the cumulative unused cap amount could be applied.
|Financial Year||Concessional Contributions made during the year||Unused cap amount for the year||Cumulative available unused cap amount|
|2019-20||$20,000||$5,000||$19,000 ($14,000 from 2018-19 + $5,000 from 2019-2020)|
|2021-20||$25,000||$0||$19,000 (no change from previous year)|
|2021-22||$40,000||$0||$4,000 ($19,000 less $14,000 from 2018-19 less $1,000 from 2019-2020)|
|2022-23||$27,000||$0||$2,000 ($4,000 less $2,000 from 2019-2020)|
|2023-24||$15,000||$10,000||$12,000 ($10,000 from 2023-2024 + $2,000 from 2019-20)|
Note: this table assumes the standard concessional cap remains $25,000 for the entirety of this period and the total superannuation balance is below $500,000 prior to June 30 of all years that concessional contributions are made.
This new opportunity could play an integral part in boosting retirement savings and will overall provide more flexibility towards one’s superannuation. To make the most of this new scheme, we encourage individuals to actively track their unused concessional cap amount or speak with one of our advisers for more information.
Written by Edward Allan
Chartered Accountant Achiever Program
Phillip Cross, Royce Cross Agencies
Kerri Stutley, Tumby Bay Foodland