The concessional contribution cap limits the amount a member can contribute to superannuation as concessional contributions during an income year. However, in order to help those with smaller superannuation balances there is now a way for members to make concessional contributions which exceed the regular cap amount and not incur excess contributions tax.
General concessional contribution cap
Concessional contributions are before tax contributions made to a superannuation fund. The common types of concessional contributions include:
- Employer contributions (including compulsory employer contributions and salary sacrifice payments)
- Personal contributions claimed as a tax deduction
- Some amounts allocated from a reserve
These contributions are assessable income of the superannuation fund and hence are effectively taxed at 15%.
From 1 July 2017 onward the general concessional contribution cap for all age groups became $25,000 which was a change from previous years where the concessional contribution cap was different based on the member’s age. The cap amount is indexed in $2,500 increments in line with the average weekly ordinary time earnings (AWOTE), rounding down. If the cap is exceeded in an income year there may be additional tax payable. It should also be remembered that this is a single member cap and not a fund cap, so it is $25,000 maximum even if a person is a member of multiple funds.
Carrying forward unused concessional contributions
Similar to the ability to bring forward two future years of non-concessional contributions, a member now has the ability to make concessional contributions in excess of their regular cap without needing to worry about the possibility of additional tax. However, instead of using future entitlements, you can make catch-up contributions where you haven’t used up your full allowance in previous years.
From 1 July 2018 it became possible to carry forward the unused amount in your concessional contribution cap to future income years. This means that the 2020 income year was the first year that it became possible to use the unused contribution cap amount from the previous year.
In addition, only those who have a total superannuation balance of less than $500,000 at 30 June of the previous income year can make use of their unused concessional contribution cap balances carried forward from previous years.
Unused cap amounts can only be carried forward for up to five years, after which they will no longer be available.
Case study
At 1 July 2020 Eliza was 53 and due to recently receiving an inheritance has decided to try and maximise her superannuation balance. Eliza knows that due to her total superannuation balance being below $1.4 million on 30 June 2020 she can use the non-concessional bring forward arrangements to make non-concessional contributions of $300,000 during the 2021 income year. However, Eliza also understands that as her total superannuation balance at 30 June 2020 was below $500,000 she can carry forward the unused amounts from her concessional contribution cap from previous years and use them in the current year.
Eliza now needs to work out what her maximum concessional contribution cap is, taking in to account the unused concessional contribution caps she has been able to carry forward. While you are able to carry forward unused amounts for up to five years and Eliza has not made her maximum available concessional contributions in these years, as it only became possible to carry forward amounts from the 2019 income year Eliza will only need to look at the 2019 and 2020 income years. Eliza reviews her fund records and can see that she made concessional contributions of $11,000 and $13,000 in the last two years respectively.
| 2018-19 | 2019-20 | 2020-21 | |
|---|---|---|---|
| General contributions cap | $25,000 | $25,000 | $25,000 |
| Total unused available cap accrued | $0 | $14,000 | $26,000 |
| Maximum cap available | $25,000 | $39,000 | $51,000 |
| Concessional contributions | $11,000 | $13,000 | $0 |
| Unused concessional cap amount accrued in the income year | $14,000 | $12,000 | $0 |
Eliza determines that she can carry forward $26,000 of her unused concessional contribution caps from the 2019 and 2020 income years. This will allow Eliza to make total concessional contributions of $51,000 during the 2021 income year. In addition to her employer mandated contributions in order to contribute additional amounts to make full use of her available cap Eliza can either salary sacrificing additional amounts from her pay or make personal contributions while claiming a tax deduction.
Conclusion
The introduction of the carry-forward for concessional contributions will allow those with smaller superannuation balances to boost their retirement savings. As most people are unlikely to use their full concessional contribution cap in a particular year as long as their total superannuation balance is below $500,000 this is something most fund members will be able to take advantage of, which with recent market impacts due to COVID-19 could prove to be very useful for some members.
