Growing Money

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.


 

Case Study

  • 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.

 

Next Steps

You should consider your situation before 30 June 2020 and take steps if appropriate:

  1. Check your 30 June 2019  total super balance by adding up all of your super accounts.
  2. Determine how much compulsory employer super will be paid on your behalf for the 2019-20 year.
  3. 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.
  4. 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.
  5. 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.