Carry-forward concessional contributions are a great tool to firstly build up your superannuation balance and secondly, to achieve a higher deduction than otherwise normally allowed. This may be beneficial when you have a higher income than normal in a particular year.

Concessional contributions

To understand the carry-forward rules, let’s recap what concessional contributions are.

Concessional contributions are contributions made to a superannuation fund from before-tax income. These contributions are generally taxed at a concessional rate of 15% within the superannuation fund, which is usually lower than most individuals’ marginal tax rates.

Here are the main types of concessional contributions:

  1. Employer contributions
    These include the mandatory Superannuation Guarantee (SG) contributions that employers are required to make on behalf of their employees. From 1 July 2024, the SG rate is 11.5% of an employee’s ordinary time earnings.
  2. Salary sacrifice contributions
    These are additional contributions that an employee can choose to make by sacrificing part of their pre-tax salary. These contributions are arranged through an agreement between the employee and the employer.
  3. Personal contributions for which a tax deduction is claimed
    Individuals can make personal contributions to their super fund and then claim a tax deduction for these contributions. This effectively treats the contributions as concessional contributions, allowing them to be taxed at the 15% rate within the super fund.

Concessional contributions cap

There is an annual cap on the amount of concessional contributions that can be made to your superannuation at the concessional tax rate. From 1 July 2024, this cap is $30,000. Contributions above this cap are subject to additional tax.

A history of the contribution concessional cap is as follows:

2024-2025            $30,000
2023-2024            $27,500
2022-2023            $27,500
2021-2022            $27,500
2020-2021            $25,000
2019-2020            $25,000
2018-2019            $25,000

Carry-forward

Carry forward superannuation contributions, also known as “catch-up” contributions, are a provision that allows individuals to carry forward unused concessional superannuation contribution caps from previous financial years to make additional superannuation contributions in future years. This provision was introduced to provide more flexibility for individuals to save for their retirement, especially those who might have had interrupted work patterns or lower super contributions in previous years.

Here are the key points about carry-forward superannuation contributions:

  1. Eligibility
    To be eligible to make carry-forward contributions, your total superannuation balance at the end of the previous financial year must be less than $500,000.
  2. Unused cap carry forward
    Starting from the 2018-2019 financial year, if you did not use the full amount of your concessional contributions cap for that particular year, you can carry forward the unused portion for up to five years.
  3. Using the carry forward amount
    In a year where you want to make additional contributions, you can add the unused cap amounts from the previous years to your concessional cap for that year. This can significantly increase the amount you are allowed to contribute at concessional tax rates.

An example

Let’s say for the years 2019, 2020, 2021, and 2022, a person made a $10,000 concessional contribution. For 2019, 2020, and 2021, the unused cap is $15,000. For 2022, the unused cap is $12,500. The total unused cap is therefore $57,500.

In the 2023 financial year, the maximum concessional contributions that can be made is $27,500 plus $57,500, totalling $85,000.

Five-year carry forward

A very important matter to remember is that an unused cap will expire after 5 years. Therefore, any unused cap for the 2018-2019 financial year will expire by 30 June 2024. The 2023-2024 financial year will be the last year that the unused cap from the 2019 financial year will be able to be used.

If you have any queries about your contributions, how much you can contribute or what you can deduct personally, contact Diana at The SMSF Accountant.