Want to catch up on your super savings to help you enjoy the holiday of your life? Here’s how.
Sometimes life can get in the way of the administrative errands we all accumulate – whether it be getting the taxes done, booking in that dreaded dental appointment, or ensuring you’re getting the most from your superannuation so your retirement – AKA, ‘the holiday of your life’ - is home and hosed. Things pop up occasionally and maybe that means you aren’t immediately able to address the life admin tasks like ‘making those extra contributions to super’ that you had scribbled down on your to-do list.
Thankfully, the Australian Government has made legislative changes that mean you can catch up on missed opportunities to make before-tax contributions to your super without being restricted by the usual annual caps. Don’t forget: more before-tax contributions could also mean less tax payable1, more superannuation and, ultimately, more money to fund a stress-free retirement.
Super 101 - Types of super contributions
First things first, it’s important to understand the two types of contributions you can make to super:
- Concessional contributions are before-tax amounts that include the compulsory super that your employer pays on your behalf, salary sacrifice and personal contributions you voluntarily make toward your super for which you claim a tax deduction. Whilst these contributions are not subject to income tax, it is important to note, that a contribution tax of 15% will still apply when your contributions are credited to your NGS Super account. Further, high income earners who earn more than $250,000 per year will be subject to an additional tax on contributions of up to 15% per year.
- Non-concessional contributions are the after-tax amounts that you voluntarily make toward your super. Since these contributions are made by you after you have earned the money, income tax has already been applied and there is no contribution tax applicable.
The contribution catch up initiative applies to before-tax contributions only. Remember, depending on your income, contributing your before-tax dollars into super means that less goes to the tax man and more goes into your super account.
How do I catch up on my before-tax super contributions?
There is a yearly cap on how much you can contribute to super. Currently, the concessional contribution limit is $25,000 per financial year, regardless of age.
However, from 1 July 2019 you can carry forward any unused amount of your cap from the previous financial year if your Total Super Balance2 is less than $500,000 on the 30 June of that earlier financial year.
You will be able to access your unused concessional contributions on a rolling basis for five years. Amounts carried forward that have not been used after a rolling five year period will expire.
It is important to note that the earliest you’d be able to use this initiative is from 1 July 2019 onwards based on your balance at 30 June 2019 and your unused concessional contributions from the 2018/19 financial year.
Here’s a couple of ways you can catch up on your before-tax contributions using the carry-forward rule:
For the 2018/19 financial year, Mary took 6 months maternity leave and 6 months unpaid leave in order to spend quality time with her newborn baby. She received employer contributions totalling $5,000 during this period but made no extra contributions to her super.
After returning to work the next financial year, Mary decided to make some before-tax contributions to catch up on her super savings. As only $5,000 of the $25,000 contributions cap was used in the previous financial year and with a super account balance at 30 June 2019 of less than $500,000, Mary is able to carry forward the residual $20,000 unused cap into the 2019/20 financial year. This means that Mary can now contribute up to $45,000 of before-tax dollars to her superannuation in the 2019/20 financial year (inclusive of her employer contributions). Should Mary choose to take advantage of the increased cap, she’ll benefit from both a larger super balance for her eventual retirement and tax savings gained by salary sacrifice.
Aside from her compulsory employer contributions $12,000 to super, Anita did not make any salary sacrifice or personal contributions to super during the 2018/19 financial year. This gives Anita a $13,000 residual cap that can be carried forward on top of the usual $25,000 cap for the 2019/20 financial year, resulting in an effective concessional contribution cap of $38,000. However, Anita’s total combined super balance at 30 June 2019 is $501,000 and she’s therefore ineligible to take advantage of the carry-forward rules in the 2019/20 financial year.
One year later and after some downward movements in the markets, Anita’s Total Super Balance on 30 June 2020 is $495,000. After considering the employer compulsory contributions totalling $24,000 for the last two financial years, Anita can now take advantage of an effective $51,000 cap for 2020/21 financial year. Her employer will again contribute $12,000, leaving $39,000 for her to make her own before-tax contributions.
Need advice to get you started?
For more information on contributions, please read our fact sheet Opportunities and limits for super contributions available at ngssuper.com.au/PDS.
If you’ve been inspired to catch up on your super savings and you’d like to know how you can get the most out of it, we’re here to help. To make an appointment phone us on 1300 133 177 Monday to Friday between 8am to 8pm Sydney time or complete the Financial planning enquiry form.
1 While before-tax contributions to super are exempt from income tax, the amount contributed to super will be subject to contributions tax of 15% on receipt by NGS Super. Depending on your taxable income, making salary sacrifice contributions may not be beneficial to you and it is important to check your anticipated marginal tax rate against the 15% contributions tax rate before making salary sacrifice arrangements. Try the Super Contributions Optimiser calculator to see what contributions are best for you.
2 Your Total Super Balance includes the sum of all superannuation balances (Accumulation phase and Retirement phase). Further details on the calculation of your Total Super Balance can be found at ato.gov.au