Taking advantage of tax-deductible catch-up payments to super

If you have not made use of the full $25,000 concessional (before tax) superannuation contribution cap, then we have some great news for you! Individual taxpayers can now carry forward any unused concessional super for up to five years. However, to be eligible you must have a total superannuation balance below $500,000 (across all of your super accounts).

The 2018-19 financial year was the first-year unused contributions could rollover, with the 2019-20 financial year the first year in which the catch-up payment deduction can be utilised.

To provide an example: if only $5,000 was contributed into super (either from an employer or business) in the FY2018-19 and FY2019-20, in the next financial year (FY2020-21) a total of $65,000 could be made as a tax-deductible contribution. This is because you could contribute the full $25,000 for FY2021-21 plus $25,000 minus $5,000 for both FY2018-19 and FY2019-20, which equates to $40,000. Of course, you do need the cash available to make this catch up contribution.

If you did not make any concessional contributions in either FY2018-19 or FY2019-20, in FY2020-21, you could make a concessional contribution of up to $75,000.

The catch-up contributions can provide an attractive way to build retirement savings and/or reduce taxable income for individuals in the following situations:

  • Parents who have been on parental leave so have not been utilising their deductible superannuation contribution caps
  • Individuals inheriting taxable income from an estate (which may push you into a higher marginal tax bracket)
  • Individuals who have made a large capital gain on property or shares (using the tax deduction to offset the additional income)
  • Receiving a pay rise or bonus which may push you into a higher marginal tax bracket

Additionally, where capital gains are anticipated in the future (i.e. looking to sell an investment property at a specific time), strategic tax planning could mean holding off on making additional before-tax contributions in order to build up the accrued amount to use in that particular financial year. Spouse contribution splitting (where a portion of one spouse’s contributions are transferred to the other) may also be useful in enabling an individual to accrue a catch-up amount where a capital gain is only made in one taxpayer’s name.

If you wish to discuss the ability to claim a tax deduction on your super contribution, or any other tax advantages, please contact your William Buck advisor.

If you would like advice on claiming a tax deduction on your super contribution, or any other tax strategies, please contact William Buck.