Many Australians are missing a terrific superannuation ‘free kick’, simply because they don’t know they may have the opportunity to ‘carry-forward’ contributions, says Adelaide based financial adviser Dylan Holliday.
“One of the more flexible provisions introduced in 2018 is the carry-forward concessional contributions rule. This rule allows an individual to make use of any unused concessional contribution cap from five previous financial years, giving them the opportunity to make ‘catch up’ contributions in certain years.
This ‘free kick’ can be particularly beneficial for those people who are approaching retirement or have retired, and are looking to divest non-superannuation assets which may have large capital gains attached (property & shares).
As always with super, there are a lot of rules to be considered, but the benefits can be significant when you get it right.
Carry-forward – a real example.
John & Sarah (not their real names) aged 58 and 54 respectively, satisfied the criteria to make carry-forward concessional contributions to superannuation. Using this strategy, they achieved a joint tax saving of approximately $76,731.02 Gross and $45,981.02 Net – (after 15% super tax had been deducted).
Having sold their family trust owned investment property, and with advice from their accountant, John and Sarah distributed the gain – producing an unexpected outcome, in that they both had income in the top marginal tax rate. Having worked in moderately paid roles, however, they each had significant unused cap space. This allowed John and Sarah to make super contributions of $105,000 & $100,000 respectively, and to claim the full amount as a personal tax deduction – significantly reducing their expected capital gains tax.
Existing Position (2022/23FY)
John – Taxable Income prior to contributions = $186,441
Sarah – Taxable Income prior to contributions = $187,026
After the free kick (2022/23FY)
John – Taxable Income prior to contributions = $81,441
Sarah – Taxable Income prior to contributions = $87,026
John’s Carry Forward Space
|
Financial Year |
Concessional Cap |
Concessional Conts. Made |
Unused Concessional Cap |
|
2021-22 |
$27,500 |
$5,363.36 |
$22,213.64 |
|
2020-21 |
$25,000 |
$4,651.96 |
$20,348.04 |
|
2019-20 |
$25,000 |
$4,115.69 |
$20,884.31 |
|
2018-19 |
$25,000 |
$0.00 |
$25,000.00 |
|
Total |
$102,500 |
$14,131.01 |
$88,445.99 |
Sarah’s Carry Forward Space
|
Financial Year |
Concessional Cap |
Concessional Conts. Made |
Unused Concessional Cap |
|
2021-22 |
$27,500 |
$10,471.85 |
$17,028.15 |
|
2020-21 |
$25,000 |
$4,518.30 |
$20,481.70 |
|
2019-20 |
$25,000 |
$2,607.82 |
$22,392.18 |
|
2018-19 |
$25,000 |
$0.00 |
$25,000.00 |
|
Total |
$102,500 |
$17,597.97 |
$84,902.03 |
As tabled above, due to their low contribution rates they were able to contribute $88,368.99 (John) & $84,902.03 (Sarah) over and above their yearly contribution limit (previously $27,500 – currently $30,000). They reduced their tax payable while giving a significant boost to their modest superannuation balances.
Another free kick example
Emily aged 70 (also not her real name) previously receiving Centrelink support and now a self-funded retiree, sold an inherited property with a significant capital gain attached. Emily was able to achieve a tax saving of $34,479.30 Gross and $17,229.30 Net after 15% super tax had been deducted, by taking up the free kick opportunity.
Firstly, Emily re-instated her eligibility to contribute to super in retirement by meeting the work test. She was then able to contribute $115,000 to super and claim this amount as a personal tax deduction. This assisted in boosting her super balance alongside additional after-tax strategies, while reducing her overall capital gains tax bill.
Existing Position (2024/25FY)
Emily– Taxable Income prior to contributions = $140,615.73
Proposed Position (2024/25FY)
Emily – Taxable Income prior to contributions = $25,615.73
Carry Forward Space - Emily
|
Financial Year |
Concessional Cap |
Concessional Conts. Made |
Unused Concessional Cap |
|
2023-24 |
$27,500 |
$661.31 |
$26,838.69 |
|
2022-23 |
$27,500 |
$0.00 |
$27,500.00 |
|
2021-22 |
$27,500 |
$2,404.23 |
$25,095.77 |
|
2020-21 |
$25,000 |
$20,801.15 |
$4,198.85 |
|
2019-20 |
$25,000 |
$20,092.07 |
$4,907.93 |
|
Total |
$132,500.00 |
$43,958.76 |
$88,541.24 |
The carry-forward concessional contributions rule is an exciting and valuable opportunity for people looking to maximise their super savings, particularly in high-income years, or as they approach retirement.
As with any financial strategy, it’s important to plan and monitor contributions to ensure that you don’t infringe on these caps. Most people will need the guidance of a financial adviser to help secure their ‘free kick’ and to ensure that they make the most of the carry-forward provisions and that their super savings strategy aligns with their long-term retirement goals,” Dylan said.
