Carry-forward contributions: the new rules for additional super contributions
Understand how these new super laws can be part of your new tax minimisation strategy
New super laws kicked off in July 2020 that changed super accounting rules in Australia. These are known as carry-forward contributions.
In this blog, we discuss what they are, and what they mean for your superannuation.
What are carry-forward contributions?
Carry-forward concessional contributions have previously been known under a different name: catch-up contributions.
First announced in the 2016 Federal Budget, this makes the $25,000 cap to personal contribution concessions more manageable for individuals.
Under this rule, any unused portion of your $25,000 personal concessional contributions can be rolled over in the following financial year, to use anywhere within a rolling five-year period. So if you don’t use the full $25,000 concessional contribution amount, you can carry the unused portion forward and take advantage of it at a time that suits you.
However, only unused concessional contributions from 1 July 2018 and onwards are eligible to be carried forwards. Any unused amount expires after five years.
Understanding concessional superannuation contributions
Concessional super contributions are those that have received a lower tax rate through special concession. Essentially, they’re your before-tax super payments.
But this is probably the question you’ve been wondering: what are the reportable superannuation contributions I can make that count towards my concessional contributions?
Basically, any personal super contribution you make up until your $25,000 cap counts towards these contributions.
If your income is less than $250,000, each of these special contributions is taxed at a lower rate of 15% as a way to incentivise saving for your retirement. For most people, this tax rate is lower than the tax rate they pay on their income, so it’s an attractive, tax-effective way to save money.
Who benefits most from carry-forward contributions
A cap on annual concessional super contributions can make it hard for those people with irregular income, or take time out from work, to build their retirement savings. So the carry-forward contributions scheme was introduced to enable those people with non-standard work patterns to take advantage of existing concessions available in the superannuation system.
It’s useful for those who work part-time, or have taken time away from their career, whether it’s to raise a family, for medical reasons, or for further study. It can also be an advantage for those later in life who, due to reduced household costs, find themselves with more disposable income available.
Eligibility rules for carry-forward contributions
Your Total Super Balance (TSB) must be less than $500,000 at 30 June of the last financial year to be eligible to make a carry-forward concessional contribution.
Calculating your TSB is done by adding the total amount of funds available, in all phases of your super, on 30 June that financial year. This includes the accumulation phase of your super, the retirement phase, and any active roll-overs you may have had on the go.
If your TSB is less than $500,000 at this point, you’re eligible to make carry-forward contributions.
If your TSB gets below $500,000 in the future, you’re eligible to apply that financial year’s unused concessional contributions in a future financial year.
How to calculate your carry-forward amount
Contact all super funds in which you hold an account and request a current valuation of your balance. Add this together to get your TSB.
Don’t forget to confirm your last reported super balance, across all the accounts, with the ATO. You can find this information through your MyGov account.
Confirm that your TSB is less than $500,000.
Go through your tax information for the previous five years to find out the amount of concessional contributions you made each year, and how much was left unused.
Then, add together all the unused portion for the last five years. This should give you the amount available in your carry-forward contributions for this financial year.
How can Elite Accounting Solutions Help?
Now more than ever, the team at Elite Accounting Solutions are positioning ourselves to help all our clients preparing for what is ahead of them. If you have any concerns about the income and tax implications of any recent changes, please do not hesitate to contact our office and speak with one of our accountants.