Catch up on Concessional Contributions

Business owners may be able to claim a personal tax deduction for concessional super contributions over the yearly cap. Here’s what you need to know.

What are concessional contributions?

Concessional contributions are contributions you make to your super fund that are tax deductible. These contributions should be made before the end of the financial year. You can contribute up to $25,000 a year.

If you don’t make the full $25,000 contribution in a year, you can carry forward the unused portion to the next year. Carry forward contributions are tax deductible and can be used from up to 5 years previous.

Non-concessional contributions are contributions from your after tax income that are not tax deductible. These can be up to $100,000 a year.

How do catch up concessional contributions work?

From 1 July 2018, any concessional contributions you did not make under the cap ($25,000) can be carried forward to the next year. This makes it possible to make a concessional contribution this year which is greater than the cap.

For example, if you contributed $15,000 last year, the leftover $10,000 can be carried over to this year. This increases the cap from $25,000 to $35,000 for this year.

Concessional contributions that were not made can be carried forward for up to 5 years. 

You may be eligible to use carry forward contributions this year if:

• Your total super balance is under $500,000
• You made less than $25,000 in concessional contributions in the 2018/19 or 2019/20 financial years
• You are making concessional contributions over $25,000 this year

What are the benefits?

Being able to increase your concessional contribution cap for a particular year may help reduce your personal assessable income and personal income tax.

By making the most of carry-on concessional contributions, you may end up with a greater superannuation balance, setting you up for a more secure retirement.

Who should take advantage of catch up concessional contributions?

Although anyone can make carry on concessional contributions, the benefits are particularly positive for:

• Self employed individuals
• Business owners who don’t get paid a wage
• People who want to retire early or improve their retirement savings

If you are a business owner who doesn’t get paid a wage, the super guarantee is not a legal requirement and you are responsible for making your own super contributions.

The carry-on concessional contribution gives you greater opportunity to make super contributions and save for retirement. Many business owners overlook the importance of super, but it should be a key part of their retirement strategy.

If you are a business owner whose income greatly varies from year to year, the carry-on concessional contribution allows you to make greater super contributions on the more profitable years.

As always, the above information is general in nature and may not be suitable for your circumstances. Before making any decisions regarding concessional contributions, it is important you seek advice to ensure this strategy is right for your situation and how it could benefit you. If you require advice, give the team at Lawrence Group a call today on (08) 9433 3288 to discuss your needs.