Superannuation carry-forward rule

Are you taking advantage of this new rule?

Did you know that a rule that has been in place for sometime now will have its first practical impact in your 2019-20 income tax return?

The “carry-forward” or “catch-up” rule for concessional superannuation contributions is now available for 2020 tax returns. These are contributions made by your employer or personal contributions where you are claiming a tax deduction for the amount contributed.

The rule allows you to carry forward some or all of the contribution limit from the previous year to the next. For example, the normal contribution limit is $25,000 per year. However, the new rule would allow someone who had contributed $15,000 in 2018-19 to carry forward the remaining limit of $10,000 to claim up to $35,000 in 2019-20.

This is an unusual rule as the general rule with superannuation contribution limits is “use it or lose it”. This may not seem like an exciting new rule, but it has many applications for reducing your tax payable.

Good examples of how to utilise this concession are:

  • You don’t normally earn high levels of income but experience a one-off increase in this year. Examples of this include, the sale of an investment property or shares subject to capital gains tax, receiving a payout for long-service leave or a general spike in business net income. If this extra income places you in a higher tax bracket it might be valuable to contribute more than the $25,000 cap.
  • You are approaching retirement and want to boost your superannuation balance whilst minimising your personal tax liabilities

As with all good things there are restrictions. The unused amounts can only be carried forward for a maximum of five years and the total superannuation balance you hold must not exceed $500,000. Further, you must satisfy the requirements to make concessional contributions. These are normally straight-forward to satisfy if you are under 65 or over 65 and pass the work-related test.

If you would like more information please contact our office to discuss the further.

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