Carry forward concessional contributions, otherwise called catch up contributions, are a way for you to make additional tax-deductible contributions to your super while helping you reduce your taxable income in a given year. This is due to these contributions being taxed at 15% instead of your marginal tax rate outside of super.
These contributions fall under your concessional cap which in the 2024/2025 financial year is $30,000. This cap is made up of the super guarantee payments your employer pays you as well as any salary sacrifice you choose to contribute to super in a given financial year.
Carry forward contributions allow you to use the previous unused caps on concessional contributions over the last 5 years. For example, in this financial year the contribution cap is $30,000, if you were to make contributions of $12,000 you would have unused cap of $18,000. The table below shows how this works over a 5-year period:
Financial year | Contributions made | Contribution Cap | Unused Cap |
2020/2021 | $9,000 | $25,000 | $16,000 |
2021/2022 | $10,000 | $27,500 | $17,500 |
2022/2023 | $11,000 | $27,500 | $16,500 |
2023/2024 | $12,000 | $27,500 | $15,500 |
2024/2025 | $12,000 | $30,000 | $18,000 |
|
|
|
|
Total | $54,000 | $137,500 | $83,500 |
Although in this scenario you would have $83,500 of unused concessional contributions you do not need to use them all at once, you can use any amount that is beneficial for you.
Now we know what they are, what are the rules?
To be eligible to make catch up contributions you must satisfy the following
- You need to be under the age of 75 – If you turn 75 in the financial year, your contribution must be received by your super fund on or before 28 days following the end of the month you turn 75
- Your total super balance needs to be less than $500,000 on 30 June of the previous financial year (This would be 30 June 2024 for the 2024/2025 financial year)
- Unused contributions can only be carried forward for five financial years until they expire
What’s the benefit and who would use them?
The overwhelming benefit of carry forward contributions is your ability to severely reduce your taxable income while boosting your retirement savings. Due to the tax effectiveness of these contributions some examples of when you might use these are:
- You receive a large bonus
- You sell down an investment asset and have a large capital gain in a financial year
- You are about the retire and wish to reduce your tax in the last year of work
- Reduce your taxation on an ongoing basis
Let’s go through a quick example:
John has $50,000 that he would like to contribute to super and at the same time reduce his tax for the financial year. (Makes sense as the government is only going to waste it anyway)
| Without contribution | With contribution |
Employment wages | $95,000 | $95,000 |
Concessional contribution |
| $50,000 |
Taxable income | $95,000 | $45,000 |
Tax payable | $21,188 | $4,863 |
Super tax payable |
| $7,500 |
|
|
|
Total tax paid for financial year | $21,188 | $12,363 |
As you can see not only has John been able to build his retirement savings but has also managed to save himself $8,825 in tax.
We hope this gives you a better understanding of catch-up contributions and as always if you need assistance Aston Financial is here to help.
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