So, how do the catch-up provisions for unused Concessional Contributions work? And how can these unused Concessional Contributions be carried-forward?
This article will explain the conditions that need to be met so that an individual can utilise the Concessional Contribution catch-up rules without exceeding the Concessional Contribution cap.
The Concessional Contribution catch-up rules were initially announced by the Government on 15 September 2016 and will take affect from 1 July 2018.
The legislation supporting the carry-forward of the unused Concessional Contribution cap rules received Royal Assent on the 29th of November 2016.
Here is a link to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.
So, let’s get into what the rules mean and how they are applied.
Carry Forward and Catch Up of Unused Concessional Contribution Cap
From 1 July 2018, individuals with superannuation balances below $500,000 will be able to carry forward any unused portion of their Concessional Contribution cap for up to 5 years (rolling period). This catch-up provision therefore can be first utilised from 1 July 2019 (the financial year after the first year of being able to accumulate unused Concessional Contributions).
Any carried forward amounts that are not used within 5 years will expire and be forfeited.
What is the Concessional Contribution Cap?
The superannuation Concessional Contribution cap is currently $25,000 p.a. (financial year). This amount is intended to be indexed in line with Average Weekly Ordinary Time Earnings (AWOTE) in increments of $2,500 (rounded down).
What are Concessional Contributions?
A Concessional Contribution is a contribution received into a superannuation account where the contributor claimed a tax deduction. This includes self-employed contributions, mandatory superannuation guarantee (SG) contributions, salary sacrifice contributions and personal deductible contributions.
Example of Carry Forward Unused Concessional Contribution Cap
Let’s assume a person with a superannuation balance of less than $500,000 contributes $20,000 as a Concessional Contribution in the financial year commencing 1 July 2018 and then contributes $15,000 into superannuation as a Concessional Contributions in the financial year commencing 1 July 2019.
Assuming that the cap is still $25,000 (i.e. no indexation), this person will be able to carry forward $5,000 of their unused Concessional Contribution cap from the 2018/19 financial year and use it at any stage until the end of the 2023/24 financial year. Further, they can carry forward $10,000 of their unused Concessional Contribution cap from the 2019/20 financial year and use it at any stage until the end of the 2024/25 financial year under the catch-up provisions.
This is shown in the table below:
|General Concessional Contribution Cap||25 000||25 000||25 000||25 000||25 000||25 000|
|Revised Cap Incl. Unused Cap||25 000||30 000||40 000||37 000||30 000||25 000|
|Actual Concessional Contribution||20 000||15 000||28 000||32 000||30 000||25 000|
How Are Unused Concessional Contributions Applied?
In practice, an individual’s Concessional Contribution Cap in any given year is increased (on top of the standard Concessional Contribution cap) by any unused portion of the cap from the previous 5 financial years, but reduced by any use of the those unused portions during that period. Therefore Concessional Contributions above the general cap can be made without it creating Excess Concessional Contributions.
When Does The $500,000 Balance Rule Apply?
An individual’s superannuation balance at the beginning of the financial year determines whether they are able to use the Concessional Contribution catch up provisions. For example, if their balance on 1 July 2021 (in the example above) was $510,000, their Concessional Contribution cap would not be inflated to $37,000 as a result of unused carried-forward Concessional Contributions. Instead, it would remain at the standard $25,000, due to that person’s superannuation balance exceeding $500,000.
Hypothetically, if that same person’s superannuation balance fell to below $500,000 by 1 July 2022, my interpretation of the rule would suggest that any unused amount of the carried forward Concessional Contribution cap could once again be utilised.
Click here to read from the Federal Register of Legislation – See schedule 6 Subsection 291-20.