One of the questions that has been coming across my desk a lot lately relates to the ability to carry forward the unused portion of a concessional contribution cap. How can you make a significantly larger contribution to super and obtain a much higher tax deduction than might otherwise be available based on the basic concessional contribution cap?
Does this sound too good to be true?
To understand this, we need to revisit some basic rules covering superannuation.
Firstly, we are talking about concessional contributions to super.
Concessional contributions include:
The concessional contribution annual cap increased from $25,000 to $27,500 on 1 July 2021.
And secondly, we look at super balances
As a result of changes made back in 2017, people with a total superannuation balance of less than $500,000 may carry forward the unused portion of their concessional contribution cap that has accrued since 1 July 2018, for up to five years.
A person’s total superannuation balance is the sum of all amounts they have in the superannuation system as at the end of the previous financial year. This includes amounts held in accumulation accounts (that is, pre-retirement accounts) and amounts held in retirement income accounts such as the balance of an account-based pension.
A person’s total superannuation balance can be found by accessing their account with My.Gov.au
Provided the total superannuation balance at the previous 30 June is less than $500,000, then a person may carry-forward their unused concessional contribution cap.
So, how does this work in practice?
Let us assume that a person had a total superannuation balance on 30 June 2021 of less than $500,000. They are therefore able to carry forward the unused portion of their concessional contribution cap.
In the 2021-22 financial year they sell an investment property and have an assessable capital gain of $50,000 (after applying the 50% discount). They would like to maximise their tax deductions in 2021-22 to reduce tax payable on the capital gain.
For the sake of this exercise, we assume the person’s employer will be making concessional contributions to super of $15,000 in 2021-22.
As things stand, they could make a personal contribution to super of $12,750 and claim a tax deduction for that amount. This will bring their concessional contributions for the year to $27,500.
However, as their total superannuation balance on 30 June 2021 was less than $500,000, they can carry forward the unused portion of their concessional contribution cap for up to 5 years.
Let us assume their unused cap is:
| Year | Basic cap | Contributions made | Unused cap |
| 2018-19 | $25,000 | $10,000 | $15,000 |
| 2019-20 | $25,000 | $12,000 | $13,000 |
| 2020-21 | $25,000 | $13,000 | $12,000 |
| 2021-22 | $25,500 | $15,000 | $12,500 |
In this example, the person will have an unused “carried forward” cap of $40,000 and a remaining cap for 2021-22 of $12,500. Therefore, they would be able to make a personal deductible contribution in 2021-22 of $52,500, thereby eliminating their potential tax liability on their capital gain.
Importantly, this is not a strategy that is limited to people generating taxable capital gains. It can be used by any taxpayer that is able to use the tax deduction to reduce other assessable income, including wage and salary earners.
The ability to carry forward the unused portion of the concessional contribution cap and make additional concessional contributions to super is a viable tax and retirement planning strategy available to many Australians. However, its use is still limited to people that are otherwise able to make voluntary superannuation contributions. This includes those under 67 years of age and, if between 67 and 75, they have met the work test.
With strategies of this nature, it is important to seek appropriate tax and financial advice to ensure that it is appropriate after considering all a person’s circumstances.