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Catch-up concessional superannuation contributions

Posted by Northadvisory on November 21, 2016

This proposed measure will allow individuals to make additional concessional superannuation contributions in a financial year by utilising unused concessional contribution cap amounts from up to five previous years, providing that their total superannuation balance at 30 June of the previous financial year was below $500,000.

This means that an individual with a low superannuation balance (eg a younger individual that is relatively new to the workforce, a small business operator, or a parent that has interrupted their working life to care for young children) will later be able to make additional concessional superannuation contributions.

An individual will be able to carry forward unused concessional contributions cap amounts from the 2018/19 financial year onwards.

An individual will be able to make additional concessional contributions in a financial year if:

• their concessional contributions for that year would otherwise exceed the concessional contributions cap for that year
• they had a total superannuation balance of less than $500,000 on 30 June of the previous financial year, and
• they have unused concessional contributions cap amounts from one or more of the previous five financial years.

Total superannuation balance

An individual’s total superannuation balance at a particular time is the sum of:

• the accumulation phase value of their superannuation interests that are not in the retirement phase
• the balance of their transfer balance account (disregarding debits and credits to the account for interests in account based income streams, and adding back the current value of the individual’s interests in account based income streams in the retirement phase)
• the retirement phase value of a superannuation interest which is the balance of a transfer balance account at that time (but not less than nil) adjusted to reflect the current value of account based superannuation interests in the retirement phase, and
• any amount rolled over between funds before that time, but not received until after that time, that is not reflected in the individual’s accumulation phase value or balance of their transfer balance account.

Unused concessional contributions cap

An individual has unused concessional contributions cap for a financial year if they did not fully utilise their concessional contributions cap that year. The amount of the unused concessional contributions cap is the difference between the individual’s concessional contributions and the concessional contributions cap.

An individual cannot have unused concessional contributions cap for a financial year earlier than the 2018/19 financial year. This means that the first year in which an individual will be able to make additional concessional contributions by applying their unused concessional contributions cap amounts is the 2019/20 financial year.

Unused concessional cap amounts not utilised after five years will no longer be able to be carried forward.

Tax planning opportunities

As individuals are not able to gain the benefit of this measure until 1 July 2018, the measure will have a limited immediate effect on most individuals.

An individual who is intending to make voluntary contributions which may increase the total superannuation balance over $500,000 in the next two years may wish to consider deferring the contributions until after 1 July 2018 to utilise the catch-up contribution cap.

An individual may consider utilising their unused concessional contributions cap to reduce personal income tax (eg by way of a salary sacrifice strategy).

Please feel free to call Cayle Petritsch or Martin van der Saag on 02 9984 7774 if you have any questions.