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Q: The bring forward concessional contributions tax claims. Are they still available and any other matters associated with such a tax claim?
A: I think this is a really important area, and I’m really glad that someone’s asked a question on this. Again, I covered this in a prior month’s webinar on the year end issues. Again, more than happy to go over this today as well. To do this question justice, I first just want to have a look at the contribution types and the contribution rules. Why I say that is I think that the bring forward concessional contribution rules are something that a lot of us can make use of, and we may not be aware of them.
Let’s just quickly start with concessional contributions. So these are the contributions that we’re making to super, essentially with pre-tax money. The employer contributions, our super guarantee contributions, our salary sacrifice contributions, or contributions that we make to super personally, where we claim a tax deduction, these are the concessional contributions that go in and get included in the fund’s accessible income. And then that income is taxed 15%. So, these are the contributions which are subject to contributions tax on contribution.
Now, remember, if we’re under age 67, there’s no work tests which is required to be met. If we’re between 67 and 74, so we are not yet 75, we do need to meet that 40 hour over 30-day work test, or we need to be eligible for the work test exemption. That work test exemption is simply just your first year of retirement where you met the work test last year, a once off thing. Have a look at the website for the work test exemption.
These contributions have an annual cap of $27,500. We can go above that cap, but if we do, we pay excess contributions tax on those amounts. Essentially, we have them taxed as if they were ordinary income.
But there are these rules which we’ve been asked about by Eileen, which is around the unused concessional contribution caps. So what this sets out that if we have an unused amount from a prior year, that amount rolls over, it accumulates, and we can contribute these amounts in a later year. So, what do I mean by that? Any unused amount of our concessional contributions cap each year is carried forward over a rolling five year period. Any amount of our unused cap rolls over to the following year and on a rolling five year basis.
And it happens automatically. We don’t need to do anything for that. We don’t lodge forms. We don’t do anything like that. It happens automatically and the ATO keeps a record of it in their systems, which you can access by going to MyGov or your tax agent can access it through their portal.
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The issue you’ve got here is that even though the unused cap rolls over each year, there are some rules that apply in the year when you want to gain access to those unused amounts. So if you don’t use any amount of your concessional contributions cap, it just rolls over and it grows. It accumulates under your name. In the year when you want to make a contribution which is above your current $27,500 cap, when you want to make a contribution using any part of your unused concessional amounts, you must have a total super balance of below $500,000 at the prior 30 June. So if your total super balance is above $500,000 at the prior 30 June, your unused amount still accrues. You just can’t make a contribution using any amount of it.
So have a look in the table at the bottom of this example there. For the year 2020, 30 June balance was $425,000. You make a $20,000 concessional contribution, which meant in that year, based on the caps that applied, you had an unused amount of $5,000 because you had a $25,000 cap. So, your unused cumulative balance is $5,000. In the year 2021, 30 June balance was $468,000 with concessional contributions of $15,000. So you had a $10,000 unused amount. We add that to the prior year’s unused amount. So, we’ve now got a cumulative unused balance of $15,000. Now in the 2022 year, we have an opening balance of $510,000. Concessional contributions of contributions of $10,000 so we have unused balance of $17,500 because that’s when the cap went up to $27,500.
So, we’ve got an unused cumulative amount of $32,500. What’s important here, though, is as our 30 June balance at the prior year was above $500,000, it means we can’t contribute any part of that $32,500 under the unused concessional contribution rules. We still have an unused amount accruing, we just can’t make a contribution using it. I want to stress that point because what would happen, for instance, in the next year, if our assets fell in value, some shares decreased or property value decreased, and they took us back below $500,000, we could then use the unused amounts.
I hope that makes sense. I just want to explain the rules that yes, they are still available. And yes, you can use the rolling five year period to make a contribution above the cap so long as your total balance is below that $500,000 at the prior 30 June. If not, you need to wait for it to fall below before you can make that contribution. And of course, you still need to be eligible based on the age and work test to make those contributions.
Again, there’s a couple of articles here that are worth looking at. One is from about a year and a half ago around how these super contributions for unused works. And also have a look at how MyGov, the article around how MyGov can help you track your super, because it then shows you where you can get the information around unused contributions. I hope that helps.