Concessional (pre-tax) superannuation contributions are limited to a maximum amount of $25,000 from 1 July 2017, for all age groups, and this needs to be kept in mind when planning any retirement savings strategy.
The government, however, is allowing a process that will allow a catch up of the concessional contributions for anyone with total superannuation benefits of less than $500,000.
Commencing on 1 July 2018, if your total superannuation benefits are less than $500,000, you will have the opportunity to start accumulating the unused portion of the prior year contribution caps, over the previous 5 years, and using these in future tax years.
The unused cap amounts can start to be carried forward from 1 July 2018, which means the 2019/2020 year is the first financial year that individuals can take advantage of the tax deductibility of unused cap amounts from previous financial years.
Combined with changes in deductibility of personal superannuation contributions which allow you to claim tax deductions directly rather than arrange salary sacrifice contributions through your employer, provides a simpler and tax effective way of adding to your retirement savings.
So, as an example, in 2018/19 Suzie’s employer pays annual contributions of $4,500 to her super fund and she contributes another $10,000 directly to her fund, claiming a tax deduction for this amount. Suzie has an unused concessional contribution amount of $10,500 to carry forward to future years. She has a $275,000 balance in her fund at this time.
In 2019/20, Suzie’s employer contributes an amount of $5,200 to her super fund. Suzie wants to make a large contribution to her fund to top up her retirement funds. She is allowed to make a maximum contribution of $25,000 for 2019/20 year, less the amount the employer has paid on her behalf and can also contribute the unused portion brought forward from last year. So, the total that Suzie can contribute and obtain a full tax deduction for is $30,300 ($25,000 - $5,200 + $10,500).
There are many benefits to making these additional contributions including investing in your retirement savings will ensure a better standard of living once you stop work, and secondly, there are strong tax benefits for making these contributions. You will be claiming tax deductions at your marginal rate of tax, which may be 37% or as much as 45% (plus 2% Medicare levy) whilst your super contributions only attract tax at 15% in the fund.
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