Superannuation has always been a tax-friendly environment and, as such, over the years, legislations have systematically reduced the amount one can contribute to super. Historically, if you did not maximise your super contribution up to the available caps, you lost the opportunity to catch up. This really was a missed opportunity. As per the Investment Trends Report (October 2016), Australians in retirement listed making extra contributions to super as the one thing most of them would like to change, if they could go back in time.
The new super catch-up legislation (legislated in July 2018) allows you to put more money into super (concessionally) from 1 July 2019, provided you meet the eligibility criteria. This is a great move to help more Australians boost their retirement savings. But as always, the devil is in the details.
Concessional contributions
A quick recap on what concessional contributions are. These are contributions that get a special rate of tax (15%), which is lower than the tax you would pay on your income. You are able to make concessional contributions of up to $25,000 each year (inclusive of employer contributions). Any amount in excess of the $25,000 cap does not get favourable tax treatment.
What is super catch-up?
From 1 July 2019, if your concessional contribution is less than $25,000 you are able to contribute extra sums to your super, up to the unused amount, provided you meet the following eligibility criteria:
- Your super balance was below $500,000 on 30 June of the previous financial year;
- The unused cap is available from 1 July 2018;
- You need to provide notice for the intent to claim the tax deduction;
- If you are 65 years and older, you need to meet the work’s test
The unused cap will expire after five years and cannot be carried forward.
If planned properly, this will allow a great opportunity for people who, for one reason or the other, could not maximise their super contributions in any year to:
- Add to their retirement nest egg;
- Claim tax deduction for the higher contribution (possible tax minimisation).
The tricky thing will be to keep track of the ongoing contributions on a running basis, monitor cashflows and map out a strategic plan to capture these between super, current goals and non-super assets. That is another area where our Financial Planners can help.
Contact Alman Partners to discuss further.
Niyati Khanna | CFP Professional, Chartered Accountant (ICAI), MBA (Finance & Strategy) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.