Catch-up concessional contributions are now live and offer an unprecedented opportunity for people to manage their taxable income and tax payable, and get additional money into their Superannuation environment.
From 1 July 2019, individuals may be eligible to use their unused concessional contributions for the first time, allowing a tax deduction of up to $50,000 in the 2019/20 financial year, or a similar opportunity with salary sacrifice. Unfortunately, the complexities around the eligibility and timing of contributions means non-advised people could be missing out on a significant opportunity to reduce their tax bill, and should speak to their financial adviser about their personal circumstances.
What are catch-up concessional contributions?
From 1 July 2018, an individual’s unused concessional contributions cap can be carried forward for up to five years allowing a concessional contribution greater than the general concessional contributions cap, which is currently $25,000. Unused concessional contributions can be first used in the 2019/20 financial year if the individual’s total superannuation balance at 30 June 2019 is less than $500,000. At first glance, total superannuation balance may seem like a simple concept that captures both accumulation and pension interests, however it can be quite complex because it also captures defined benefit interests and a modified transfer balance account.
The Australian Taxation Office refers to catch-up concessional contributions as carry forward concessional contributions.
Tip: An individual’s total super balance is available through their MyGov account. Unused concessional contributions are not provided through MyGov at this time and may require a manual calculation.
What are the benefits?
A larger concessional contributions cap will provide an individual with a greater opportunity to reduce their personal assessable income and personal income tax. For employees, this opportunity may be limited given that some of their concessional contributions cap will already be used by compulsory employer superannuation contributions, known as the Superannuation Guarantee. In addition to the initial tax savings, the individual will have more money invested in the concessionally taxed superannuation environment which may result in improved retirement savings. For non-employees who do not receive the Superannuation Guarantee the benefits of catch-up concessional contributions may be greater.
Moving beyond 2019/20
The opportunity and benefits of catch-up concessional contributions become more substantial as we move beyond the first year of application (2019/20), but so does the complexity. In managing catch-up concessional contributions, it is important to understand the order applying to using an individual’s concessional contributions, and thus one should always speak to an adviser about their personal circumstances.
If you or anyone you know would like to discuss this opportunity, or requires advice in other area, please call our office today to arrange an appointment on (07) 5574 0667.
Wahlstrom Financial Services Pty Ltd, ABN 43 078 015 988, is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 an Australian Financial Services Licensee number 244252. Millennium3 Financial Services Pty Ltd and Wahlstrom Financial Services Pty Ltd are not responsible for the advice given regarding lending. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement. The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.