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Carry forward rule

Blog | Carry forward unused concessional contributions to reduce tax

Pierce Hanlen
Private Client Adviser
29 Apr 2021

One of the newest superannuation contribution rules could be used in certain circumstances to significantly reduce the amount of tax you need to pay. 

‘Concessional contributions are the most common way of contributing to super. They are taxed at the concessional rate of 15% (compared to your marginal tax rate) when they go into your super account and include your employer contributions. The annual cap on concessional contributions is $25,000 (increasing to $27,500 in the 2021/22 financial year). 

If you have less than $500,000 in super at the end of the previous financial year, you could carry forward any unused concessional contributions into the current financial year so that you can make a larger concessional contribution. Unused cap amounts are available for a maximum of five years, after which they will expire. As it is a new rule, you are only able to carry forward unused cap amounts since the 2018/19 financial year. 

So, when could this new rule be beneficial? 

  • You may be selling an investment property or a parcel of Australian shares that results in a large taxable capital gain. 
  • You could receive a pay rise and start paying tax at a higher marginal tax rate. 
  • You may receive a one-off bonus from your employer. 

Carrying forward any unused cap amounts from previous years could allow you to pay tax at 15% instead of your marginal tax rate, potentially saving you thousands. 

Let’s look at an example of how these rules could be used. 

Let’s say you pay tax at 37%, have $350,000 in super, and receive employer contributions of $10,000 each year to super. Your company has performed well lately, and you just found out that you will be receiving a $40,000 bonus this year.  

As per the following table, carrying forward the unused cap amounts from the 2018/19 and 2019/20 financial years would allow you to make an additional 45,000 contribution in the current financial year. 

If you don’t make any additional contributions to super, you would pay 37% tax on your bonus, or $14,800.  

If you chose to carry forward the unused cap amounts from the previous financial years and contribute the full $40,000 to super, you would pay tax on your bonus at 15%, or $6,000. That’s a saving of $8,800!  

What’s the catch?  

As per the usual super rules, you are unable to access money in super until at least age 60. It is therefore important to make sure that using carry forward concessional contributions is appropriate for your personal circumstances. It’s best to seek personal advice from your financial adviser to make sure your strategy is in line with your goals and objectives. 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.