It’s nearing the end of the financial year, and that’s the time we traditionally review superannuation contributions.
There are two types of contributions – concessional and non-concessional contributions, and today we’re discussing concessional contributions.
What are concessional contributions?
For those that need a refresher, concessional contributions refer to the types of contributions that have a tax deduction claimed against them. This commonly includes contributions that come from an employer via the 9.5% super guarantee, or salary sacrifice. These contributions are taxed at 15%.
The general concessional contribution limits are $25,000 per person, per financial year. This has been the limit for several years, and is increasing to $27,500 from 1 July 2021, for the 2022 financial year.
What should I think about when planning my concessional contributions for 30 June 2021?
1- “Carry Forward” your previously unused concessional contributions.
Although the general concessional contribution limit is $25,000, the 2021 financial year is just the second year that we’ve had the opportunity to utilise the ‘Carry Forward’ provisions announced as part of the 2017 Budget.
What this means is, if your total superannuation balance is less than $500,000 at 1 July of the current financial year, you’re eligible to utilise any unused concessional contributions from 1 July 2018.
For example, if during the 30 June 2019 financial year your concessional contributions totalled $20,000, you have $5,000 unused. Then during the 30 June 2020 year your concessional contributions were $10,000. Assuming that your total superannuation balance at 1 July 2020 is less than $500,000, for the 2021 year you would actually be able to claim $45,000 in concessional contributions, being $25,000 for 2021, as well as the $5,000 not used up in 2019 and the $15,000 not used up in 2020.
Although this was only available from 1 July 2018, going forward you’ll be able to ‘carry forward’ up to 5 years of unused concessional contributions. This is great for topping up in a later year if you are able to. So, in 2023 if you still have that $5,000 from 2019 unused, you can carry that forward and use it then.
Don’t forget to take into account the balances of all your superannuation accounts if you have more than one. Also don’t forget that if your balance was more than $500,000 at 1 July 2020, you won’t be able to utilise this.
2- Claiming a personal tax deduction for any super contributions made (and making up for COVID-19)
Previously only those who earned less than 10% of their income from salary or wages could directly claim a tax deduction in their personal tax return. Now anyone can make this claim.
This is particularly handy for a couple of reasons:
- Your employer doesn’t allow you salary sacrifice additional amounts to your super;
- You want to save the cash towards the end of the financial year, and then top up to exactly $25k yourself (that is, you have full control over the total contribution);
- Your contributions have not been as high as usual due to COVID-19 and a decline in your wages.
Making these contributions is fairly straightforward – you make a deposit directly to your superannuation fund, and submit a Notice of Intent to Claim a Deduction Form to the trustee so that they know that you’re claiming a tax deduction on the amount.
3- Division 293 Tax
Division 293 tax is an additional tax on super contribution which applies to individuals who earn over a certain threshold. If your earnings are over $250,000 this applies to you for 30 June 2020.
The additional tax is charged at 15% which is just something to note if you are over the threshold – your contributions are going to be taxed at 30% instead of usual 15%.
4- Adjustments to existing salary sacrifice arrangements from 1 July 2021
As I mentioned above, the concessional contribution rate is increasing to $27,500 from 1 July 2021. If you have an existing salary sacrifice arrangement with your employer in place on the assumption that $25,000 is the limit, you might like to adjust your arrangement in line with the increase in time for 1 July.
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