“I am 54 and have discovered that I can use some of my previous years unused superannuation contributions cap, how does this work”
Answer:
There is a limit on the amount of money you can put into super and claim a tax deduction on. This limit is $27,500 per year. These types of contributions are called “concessional” contributions.
If you have not fully utilized your concessional contributions cap in previous years, you may be eligible to carry-forward the unused portions to increase your contribution caps in later years.
Since superannuation guarantee contributions and salary sacrifice also count towards this cap, they need to be taken into account when working out your carry-forward unused concessional contribution cap.
Eligibility:
To be eligible to carry forward unused cap amounts, you must meet the following criteria:
Unused cap amounts are available for a maximum of 5 years and expire after this period. For instance, any unused cap amount from the 2018–19 financial year not used by the end of 2023–24 will expire.
How It Works:
Let's say you are eligible to carry forward unused concessional contributions cap amounts. Here's how it might work for you:
If you used $10,000 of your concessional cap in the following financial years: FY2020-21, FY2021-22 and FY2022-23; you would have accumulated a carry forward unused concessional contribution cap amount of $50,000. The table below shows how this is calculated, which is essentially the general concessional contribution cap for the relevant financial year, less how much was actually used.
In FY2023-24, this means you could make a concessional contribution up to $77,500 (i.e. $50,000 carry forward unused cap + the general cap available for FY2023-24 of $27,500).
You can check your unused concessional contribution cap amounts on your myGov/ATO/Super/information/carry-forward concessional contributions.
To claim a tax deduction for your contribution, you need to provide your fund with a notice of intent to claim a tax deduction (within certain timeframes) and receive acknowledgment from the fund.
Potential Strategy:
Individuals may intentionally accumulate their unused cap amounts for use in a later financial year when their taxable income is expected to be higher (for example from the sale of an investment property) – this will allow them to make a larger concessional contribution to superannuation and obtain a tax deduction to reduce their tax liability. It is important to note here that unused concessional contribution cap amounts expire after 5 years.
Excess Concessional Contributions:
It's important to note that if you exceed your concessional contributions cap in any given year you may be taxed at a higher rate. It's crucial to be aware of your contributions and consult with a financial advisor to make informed decisions regarding your superannuation contributions to avoid excess contributions and manage tax implications effectively.
This blog contains general and factual information and does not take into account anyone's individual objectives, financial situation, needs or tax circumstances. We strongly recommend you contact one of our Advisers if you would like personal advice.
Redpoint Investment Holdings Pty Ltd (trading as CY Financial Advice), is a corporate authorised representative (No. 378099) of CY Financial Services (AFSL No. 509648)