By Darren Withers

If you haven’t maximised concessional contributions in the past, you might be able to catch up. Starting in the current financial year, new laws allow you to put extra into super where you haven’t fully used your contributions cap in the previous year.

This applies only to concessional contributions. These are tax deductible contributions made either by an employer, or by an individual who then claims a tax deduction. Normally, your concessional contributions are capped at $25,000 per annum. However, where you haven’t fully used that cap in the 2018/19 tax year, any unused amounts can be added to your cap for this year.

For example, if you made $10,000 worth of concessional contributions last year, you would have an unused cap amount of $15,000 plus this year’s cap of $25,000 available in 2019/20.

To be eligible to make a catch-up contribution, you must have a total super balance (at the previous 30 June) of less than $500,000. You also need to be under 65 or, under 75 and have done some work.

At this stage, you can only catch up on unused contributions from the 2018/19 year. Going forward however, unused contributions will continue to accrue from that point. By 2023/24, it will be possible to catch up contributions from the previous 5 financial years. Beyond this point, you will be able to catch up on unused contributions from the previous rolling 5 year period.

Potentially, this means that someone in 2023/24 could make $150,000 worth of concessional contributions, had they not made any in the previous 5 years.

In the current year however, any unused cap amount from last year can be added to the $25,000 concessional cap. This will be useful for those that have lumpy incomes from year to year, or those that might have a big one-off tax bill.

For example, let’s assume a retired couple, both aged 64, have sold an investment property. The taxable gain from the property is $140,000. This is their only taxable income, as they live off tax free super pensions (with a balance of under $500,000 each).

Neither member of the couple made concessional contributions in the previous year. As a result, each of them can put $50,000 worth of concessional contributions into super. This results in their taxable incomes reducing from $70,000 to $20,000. This lowers their combined income tax from $31,394 to nil. As concessional contributions are taxed within super at 15%, the tax payable within super is $15,000 on the $100,000 contributed – still a net saving of $16,394.

There are many other situations where taking advantage of this new allowance could be beneficial. So, please speak to your Elston adviser to determine if this might be appropriate for you.

If you would like more information please call 1300 ELSTON or contact us to speak to one of our advisers.