Low Hanging Fruit – Carry Forward Concessional Superannuation Contributions
Disclaimer
The information in this article contains general advice and is provided by Hood Sweeney Securities Pty Ltd AFSL No.220897. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. Please refer to our FSG (available at https://www.hoodsweeney.com.au/services/financial-planning/how-we-service-our-clients/financial-services-guide) for contact information and information about remuneration and associations with product issuers. All examples are provided for illustrative purposes only.
In this thought leadership series, JC Botha* explores three frequently underestimated opportunities that can significantly impact one's financial position. Part 1 discussed Age Pension and Commonwealth Seniors Health Card benefits. Now, in Part 2 let’s focus on unused concessional superannuation contributions.
Carry Forward Concessional Superannuation Contributions
Starting from the 2018-19 tax year, the Australian Taxation Office (ATO) introduced the Carry Forward provision for unused concessional contributions. This provision allows for unused concessional contributions to be carried forward for up to five years, provided one’s total superannuation balance (TSB) is less than $500,000 as at 30 June of the previous year. This means significant tax savings could be available, even if you do not consider yourself a substantial contributor to superannuation.
How it works
The annual superannuation concessional contributions cap is currently $30,000. Super Guarantee contributions, currently set at 11.5% of wages, form part of this amount. Most Australians do not reach this annual contribution limit, and some make no contributions at all. Common reasons for this include being self-employed, unemployed, or having limited savings capacity. The difference between the annual cap and concessional contributions made is recorded by the ATO for each taxpayer and is available for use in the subsequent five years (subject to the $500,000 TSB rule). These unused contributions may be utilised in one or more future tax years.
Consider the following example to understand the potential benefit:
Sara is 62 years old and semi-retired. She earns a casual wage of $35,000 per annum, and her contributions to superannuation have been limited in recent years. Her TSB at 30 June 2024 was $420,000. Sara recently sold an investment property inherited from her father, realising a capital gain of $400,000. Her concessional contributions over the past five years are listed in the table below:
One should not lose sight of the long-term benefits of having more savings in the tax-friendly superannuation environment. The ongoing benefits from making this contribution are thus not limited to the one-off $33,090 tax saving. These benefits could be highlighted as part of a holistic financial plan.
Summary
The Carry Forward provision is often forgotten by many, but substantial income tax trigger events like selling a property, earning a large bonus, inheritance, or a substantial wage increase could be an ideal opportunity to utilise any eligible unused contributions. The immediate and long-term benefits regularly surprise, but as always we recommend seeking financial advice before acting.
*JC Botha is a Director and Senior Financial Planner l Strategy & Investments and Representative of Hood Sweeney Securities Pty Ltd AFS Licence No.220897.