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How to use superannuation catch-up concessional contributions

How to use superannuation catch-up concessional contributions

With the new financial year well underway, it’s time to consider how you can top up your superannuation balance, considering any changes in your personal or family circumstances.

One easily overlooked planning strategy involves the five-year catch-up concessional contributions, which should help about 230,000 Australians in the 2019-20 financial year.

Here is an overview of how you can become eligible to access these catch-up concessional contributions:

Eligibility for super concessional contributions

The 2019-20 financial year is the first year when carry forward provisions come into effect, where you can carry forward unused contributions for five consecutive years.

To be eligible, your Total Superannuation Balance (TSB) must be less than $500,000 at 30 June of the previous year. This is assessed at 30 June of the prior year for each year in the rolling five-year period in which you intend to use the unused cap.

This strategy can be used for taxpayers expecting to have higher taxable income in an income year and would like to reduce the tax they have to pay, whether it’s for work bonuses, large capital gains, retirement payouts or large trust distributions.

Individuals aged 65 to 74 and who meet the work test (and TSB test) will also be eligible to access the catch-up concessional contributions.

Total superannuation balance

TSB is a relatively new concept, which has applied from 1 July 2017.

At any point in time, your TSB is the total of the following amounts:

  • Any accumulation phase interests;
  • Any retirement phase interests (as reflected in your Transfer Balance Cap) and;
  • Any rollovers between superannuation funds that are in transit on 30 June.

Any amounts of personal injury or structured settlement contributions are reduced from your TSB.

It is important to note that the TSB (unlike the Transfer Balance Cap) is subject to earnings in the superannuation fund and can fluctuate significantly from year to year.

Case study

Sam, currently aged 50 and unemployed, sells an investment property for $300,000 in the 2021 financial year and generates a net capital gain of $100,000. His super fund has not received any concessional contributions for the 2019 and 2020 financial years.

As his TSB is below $500,000 at 30 June 2020, he is eligible to contribute up to $50,000 in catch-up contributions, plus $25,000 under the annual concessional cap, in the 2021 financial year.

The balance of the proceeds ($200,000) could also be contributed as a non-concessional contribution, subject to the bring forward provision.

The tax impact of Sam using the catch-up concessional contributions is shown below:

No contributions made Catch-up concessional contributions used Total tax saving
Assessable income $100,000 $100,000
Less super contribution Nil ($75,000)
Taxable income $100,000 $25,000
Gross personal tax (excl Medicare Levy) $24,497 $1,292
Tax in super @ 15% Nil $11,250
Total tax (personal and super) $24,497 $12,542 $11,955

By using the five-year catch up concessional contributions, Sam would potentially save $11,955 in tax.

Talk to the superannuation experts

With so much to consider, you might want to engage a superannuation expert to make sure you are getting the most value out of your super strategy.

LDB’s team of superannuation specialists can help, so give us a call on (03) 9875 2900 or fill in the contact form below.

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