If you haven't already taken advantage of carry-forward concessional contributions, now is the time to do so. This is the last year to use any unused concessional contributions accrued in the 2018/19 financial year, and with stage 3 tax cuts on the horizon, it's a great opportunity to maximise your savings and reduce your tax liability.
To be eligible for carry-forward concessional contributions, you must have a Total Super Balance (TSB) below $500,000 at the end of the previous financial year. The 2018/19 financial year was the first year individuals could start accumulating unused concessional contributions amounts to be used in future years. However, these unused amounts have a rolling five-year expiration, meaning they will "drop off" after five financial years have passed.
Considering that almost five financial years have elapsed since the 2018/19 financial year, this is your last chance to utilise any unused concessional amount from that year. With tax cuts scheduled for next year, it may be more advantageous for you to reduce your income this year compared to the following year.
For instance, let's say you have an income of $150,000. Currently, your marginal tax rate is 39%. However, next financial year, your marginal tax rate will drop to 32%. Therefore, reducing your taxable income this year would be more beneficial than waiting until next year. One way to achieve this is by utilising carry-forward concessional contributions.
The ordinary concessional contribution cap is $27,500, but it can be higher if you have unused carry-forward concessional contributions and your TSB is below $500,000. Contributions that count towards your concessional contribution cap include super guarantee, salary sacrifice, and personal deductible contributions.
There are some common myths surrounding carry-forward concessional contributions that need to be debunked. Firstly, carry-forward concessional contributions are not limited to personal deductible contributions. Super guarantee, salary sacrifice, and personal deductible contributions all count towards your concessional contribution cap, including any carry-forward amounts, if you are eligible.
Secondly, non-residents can also take advantage of carry-forward concessional contributions as long as they have taxable Australian income and their TSB is below $500,000. Carry-forward concessional contributions are not limited to Australian residents.
Thirdly, the administration of carry-forward concessional contributions is no different from using the standard concessional contribution cap. If you are making a personal deductible contributions to your super, you can claim an amount higher than the annual concessional contribution cap in your notice of intent to claim a deduction. Just make sure to submit the notice within the required timeframes.
Lastly, carry-forward concessional contributions can still be used even if your TSB reaches $500,000 or more. If your TSB reduces to below $500,000 in a future year, you will become eligible to use any carry-forward concessional contribution amounts in the following financial year.
To determine how much unused amount is available for you, you can check your myGov account. The tax portal on myGov provides details of your historical concessional super contributions, as well as cumulative carry-forward amounts. It also confirms your eligibility based on your TSB as of 30 June of the previous year.
Carry-forward concessional contributions can be a valuable tool to boost your retirement savings and reduce your personal tax. With next year's tax cuts on the horizon, now is the perfect time to utilise any available carry-forward concessional amount if you are eligible.
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