This tax year, 2019-20, is the first year you will be entitled to carry forward prior year unused amounts of your $25K concessional super cap, and contribute more than the $25K concessional super cap, provided you have a total super balance of less than $500,000 on 30 June of the prior year. Unused amounts are available for a maximum of 5 years after which they expire.
When this is combined with the fact that both employed and self-employed taxpayers can now top up their deductible super contributions up to their concessional super cap, this can be a powerful tax planning tool enabling a significant tax deduction.
- John has a 30 June 2019 total super balance from all his accounts of $480,000.
- His employer paid $3,000 compulsory super into his super account in the year ended 30 June 2019 but John did not make an additional contribution within his $25K cap.
- Therefore, John’s unused concessional contribution cap from the 2018-19 year is $22,000.
- John is self-employed in the 2019-20 year in his new business and so he will not receive compulsory employer super, but can make a concessional contribution up to his $25K super cap.
- In fact, in the 2019-20 year, John has access to both the $25,000 super cap plus the unused $22,00 from the previous year carried forward, a maximum cap of $47,000, because he qualifies with a less than $500,000 super balance in the prior year.
- John speaks to his accountant and advises that he will make about $140,000 taxable income for the 2019-20 year.
- After taking advice, John decides to contribute $47,000, his maximum cap, into his super account.
- As John has a marginal tax rate of 39%, he can save $18,330 ($47,000 x 0.39) in tax in the 2019-20 year.
There are some considerations that you should be aware of:
- John is entitled to contribute more than the $25K super cap because his total super balance across all of his super accounts is less than $500,000 as at 30 June of the prior year.
- John will pay contributions tax of 15% on the contributions into his super account, so the real tax savings is $11,280 ($47,000 x 0.24)
- John must complete a Notice of Intent to Deduct Super form stating his intention to claim $47,000 as a tax deduction and obtain a letter of acknowledgement from his super account trustee before lodging his personal income tax return.
You should consider your situation before 30 June 2020 and take steps if appropriate:
- Check your 30 June 2019 total super balance by adding up all of your super accounts.
- Determine how much compulsory employer super will be paid on your behalf for the 2019-20 year.
- At the very least try to top up your super contributions to the $25K super cap, as it is both tax effective and creates retirement wealth.
- If your 30 June 2019 balance is below $500,000, consider carrying forward any unused amounts of your prior year $25K cap, for an even bigger tax deduction for the 2019-20 year or a future year.
- As this is a potentially powerful strategy, it is advisable to take advice as to the timing of when to implement such a strategy.
If you have any queries, please email or call our office on 03 9523 6500 to discuss further.