Carry Forward Concessional Contributions

This is the last year to use unused carry-forward concessional contributions accrued in the 2018/19 financial year. With stage 3 tax cuts on the horizon, now is a great time to think about using carry-forward concessional contributions. 

Background 

Carry-forward concessional contributions (CCs) allow individuals to use unused CC cap amounts going back up to five past financial years. To be eligible, individuals must have a total super balance (TSB) below $500,000 at 30 June last financial year. 

The 2018/19 financial year was the first year individuals could accrue unused CC amounts to be used in a future year. Unused amounts apply on a rolling five-year basis, meaning unused amounts ‘drop off’ after five financial years have passed. 

As almost five financial years have passed since the 2018/19 financial year, this is the last year to use any unused concessional amount in that year.

With tax cuts set for next year, it may be more valuable for your individuals to reduce their income this year compared to next year.

For example, the marginal tax rate for a client with $150,000 of income is currently 39%. Next financial year, a client with the same income will have a marginal tax rate of 32%. Reducing their taxable income is more valuable this year compared to next year. One way your client may be able to reduce their taxable income is by using carry-forward CCs. 

Concessional contribution basics 

The ordinary CC cap is $27,500. This cap can be higher if the client has unused carry-forward CCs and their TSB is less than $500,000. 

Contributions which count towards a client’s CC cap include super guarantee, salary sacrifice and personal deductible contributions (PDCs) 

Tax cuts from 1 July 2024 

A client with taxable income between $45,000 and $200,000 will enjoy a tax cut from 1 July 2024. Individuals with income within this range will benefit more this financial year than the next financial year by taking advantage of strategies to reduce taxable income. These strategies might include salary sacrifice to super or making a PDC. 

The table below compares current and future tax rates and illustrates the tax savings (net of contributions tax) of making a $10,000 CC via PDC or salary sacrifice in the current financial year and next financial year.

Common myths 

Carry-forward CCs only apply to PDCs 

SG, salary sacrifice and PDCs are CCs and will count towards the client’s CC cap, which includes carry forward CC cap amounts if eligible. 

Non-residents cannot carry-forward CCs 

Carry-forward CCs are not limited to Australian residents, meaning individuals who are overseas (with taxable Australian income) or newly arrived residents can also take advantage of carry-forward CCs as long as their TSB is less than $500,000. 

Carry-forward CCs are administered differently 

Individuals who use available carry-forward CC cap amounts do not need to do anything different compared to using the standard CC cap. If making a PDC to super, individuals can claim an amount more than the annual CC cap in their notice of intent to claim a deduction and ensure the notice is submitted within ordinary required timeframes. 

Carry-forward CCs cannot be used once TSB is $500,000 or more 

If the TSB reduces to less than $500,000 in a future year, the client will become eligible to use any carry forward CC amounts in the financial year that follows. 

Using myGov to help 

Individuals wanting to use carry-forward CCs should confirm how much unused amount is available on their myGov account. Using the tax portal on myGov and choosing ‘super’ on the top panel will provide details of historical concessional super contributions, as well as cumulative carry-forward amounts. myGov also confirms eligibility based on the TSB as of 30 June of the previous year. 

To help your client access important information on myGov, check out MLC’s helpful PDF on How to monitor carried forward concessional contributions here. 

Reference: This article is an extract from MLC’s PDF titled “Don’t miss out on carry-forward concessional contributions” which was published on 14 August 2023. Learn more about them here. 

Conclusion 

Carry-forward CCs can be an effective way to boost your retirement savings and reduce personal tax. With next year’s tax cuts looming, now may be a good time to use any available carry-forward concessional amount if the client is eligible. 

However, before you make any investment decisions, please speak to a qualified and professional financial planner to ensure that this strategy is best for your unique circumstances. 

If you don’t have an existing experienced and qualified Financial Planner on your team and would like to speak to one, we’d be happy to have a chat with you. Simply request a free initial consultation here, and our team will be in touch to provide the guidance you need to navigate these important financial decisions.