Are you looking to boost your super savings and claim extra tax deductions? Find out more about the important changes in superannuation law that allow people to do just that.
Carrying forward unused concessional contributions
Concessional superannuation contributions are those contribution amounts that are made before tax and are generally made up of employer contributions or member personal contributions where a tax deduction is claimed. The maximum amount of concessional contributions that can be made each year is capped. The cap recently increased from $25,000 to $27,500 on 1 July 2021.
From 1 July 2018, members are able to carry forward unused concessional superannuation cap amounts and make extra contributions above the cap. This is a very helpful change.
Who is eligible?
If your total superannuation balance is less than $500,000, you can make these extra super contributions.
This includes all superannuation fund balances at 30 June of the previous year.
The amount of the unused cap is based on the amount of concessional contributions made in previous years from 1 July 2018 for a period of up to 5 years and are utilised by using the oldest amounts first.
Any unused cap amounts are available for up to 5 years, after which time they expire.
At the start of the 2024 – 2025 income year, Matt is considering his future tax planning opportunities with relation to his superannuation fund contributions.
He reviews his prior year concessional contributions and is aware that he is able to access unused cap amounts from up to five previous years. With the assistance of his advisor, he is able to determine the total amount of concessional superannuation contributions he can make without paying extra tax.
Matt is able to go ahead with his plan if his total super balance is less than $500,000 as at 30 June 2024.
Who can benefit?
This strategy is most relevant for members with sufficient cash who are looking to boost their retirement savings, who have not fully utilised their concessional contributions cap in prior years and meet the prerequisite conditions.
A planning opportunity could exist for example where you have made a significant capital gain on the disposal of asset with minimal concessional contributions in prior years. Any unused concessional contribution amounts can be utilised and funded by the proceeds from the disposal. Furthermore, you can claim this amount as a deduction against your taxable income.
Another scenario is where you have a low superannuation balance but has a large amount of taxable income due to investment income or trust distributions. By determining the amount of unused concessional contributions in prior years, an opportunity exists for you to be able to claim significant tax deduction, while increasing your superannuation balance at the same time.
In claiming a large deduction, sufficient analysis should be taken to ensure that you have sufficient taxable income to support the deduction. In addition, it should be determined if the deduction provides a tax benefit to you that is greater than the tax payable on contributions in the superannuation fund.
The application of Division 293 tax should also be considered. In short, Division 293 tax is the additional tax payable on most concessional contributions where income for the purposes of Division 293 exceed the threshold. It must be said however that in this circumstance, the benefit of the tax deduction outweighs the cost of the additional tax.
For more information on tax planning opportunities or to determine the total amount of concessional superannuation contributions you are eligible to make, please contact your usual Mazars advisor, the author or one of our superannuation specialists via the form below.
Author: Joel Orbita
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