Last chance for catch-up concessional contributions

With the end of the financial year approaching, now is the time to make any catch-up concessional contributions (CCs) for clients who have a total super balance of less than $500,000 and unused concessional contributions that accrued from the 2018-19 financial year onwards.

How do carry-forward concessional contributions work?

Since 1 July 2018, clients have had the ability to carry forward the unused portion of prior year concessional contributions (CC) caps for up to five financial years, for use in a future year, where their total super balance is less than $500,000 at 30 June of the previous financial year.

If eligible, your client’s available CC cap for a financial year will automatically be increased by accrued unused amounts.

Where clients have unused CCs from 2018-19, this unused amount expires on 30 June 2024.  From 1 July 2024, clients who are eligible to utilise catch-up CCs will only be able to access unused amounts accrued from 2019-20 financial year onwards.

Keeping track of your client’s concessional contributions

Your client should have access to their super contributions information using super fund records and ATO online services such as their MyGov portal, however it is important to check to ensure the information is accurate – especially when your client has a self-managed superannuation fund (SMSF), which may have delayed contribution reporting.  To avoid an excess, it is important to monitor your client’s CCs effectively by:

  • staying informed about their CCs cap, including any unused amounts from previous years
  • monitoring the client’s total super balance for 30 June of the financial year prior
  • keeping track of contributions from all sources, including employers, salary sacrificed amounts and personal contributions; and
  • understanding the payment and reporting timelines, ensuring contributions have been allocated in respect of the appropriate financial year.

Clients with an SMSF may have flexibility regarding contribution timing, allowing contributions from one financial year to count towards the next using a reserving strategy.

If your client is at risk of exceeding their concessional contributions

If clients are at risk of breaching their CC cap in the current financial year, they can:

  • stop or reduce any before-tax voluntary contributions to super
  • refrain from claiming personal contributions that they originally intended to claim as a personal tax deduction in their tax return
  • apply to opt out of receiving super guarantee from one or more of their employers if they have two or more employers, or
  • apply for contributions to be adjusted due to special circumstances.

Consequences of exceeding the concessional contribution cap

If clients exceed their cap, the excess concessional contribution (ECC) is included in their assessable income and taxed at their marginal tax rate with a 15% tax offset. Clients can elect to release the ECC from their super, which will have tax withheld before the net amount is released by the super fund to the client.

The ECC can also be retained in super and count towards the client’s non-concessional contribution cap. Additional tax is payable if an excess non-concessional contribution applies. 

Example

After selling a parcel of shares, Lena’s taxable income has increased to $150,000 for the 2023-24 financial year. Looking to make the most of these extra funds, Lena speaks to her adviser. As Lena has no immediate spending requirements, sufficient savings to meet short to medium term cash flow needs and her TSB on 30 June 2023 was less than $500,000, her adviser recommends a catch-up CC strategy to meet her goal of growing her retirement savings in a tax effective manner.

Lena’s adviser recommends a personal deductible contribution of $31,000 for 2023-24, which, coupled with her SG contribution from her employer of $13,200, brings her total CCs for the current financial year to $44,200.

As catch-up CCs are applied on a ‘first in, first out’ basis, she will have utilised the full amount of her 2018-19 unused accrued CC ($10,000) and a portion of her 2019-20 unused accrued CC ($10,000 – $6,700 = $3,300 is the amount remaining that can be used by 30 June 2025)

Financial year CC made Annual CC cap Unused
CC accrued
Total unused CC
available to carry-forward
2018-19 $15,000 $25,000 $10,000 $10,000
2019-20 $15,000 $25,000 $10,000 $20,000
2020-21 $15,000 $25,000 $10,000 $30,000
2021-22 $15,000 $27,500 $12,500 $42,500
2022-23 $20,000 $27,500 $7,500 $50,000
2023-24 $44,200 $27,500 $33,000

By making a personal deductible contribution of $31,000 in 2023-24, her taxable income reduces from $150,000 to $119,000, reducing her tax payable (including Medicare levy) from $43,567 to $31,522 which produces a total saving of $12,045.

Please note: Any tax and social security information in this material sets out our understanding of current legislation and practice as at the date of this document. It is only intended to be general in nature and does not constitute tax or social security advice. We recommend that you seek specific tax and social security financial advice on your personal circumstances before acting on this information or making an investment decision..