Take advantage of your carry forward cap

Did you know that you can boost your super savings by using the unused carry forward concessional contributions cap? Put simply, the unused cap allows individual to carry forward any unused amounts from their concessional contributions cap starting from 1 July 2018. This measure is particularly useful for people that have taken a break from work whether voluntarily or otherwise and gives those individuals a chance to “catch-up” on super contributions they missed.

2021 may have had a subdued start, but a new year brings in new resolutions, perhaps one of your resolutions this year is to boost your super balance so you can enjoy an early retirement. Even if retirement is not on the horizon for you, it is good practice to take any opportunity to grow your retirement savings. With the unused concessional contributions cap carry forward, you are now able to contribute more to your super than ever before.

“In a nutshell, the unused concessional contribution cap carry-forward allows individuals to carry forward any unused amounts from their concessional contributions cap, provided their total super balance is less than $500,000 on 30 June of the previous year.”

Although the unused concessional contributions cap carry-forward was a measure that applied from 1 July 2018, the first year individuals will be entitled to carry forward unused amounts is the 2019-20 financial year.

This is particularly useful for people who have had to take a break from work or had interrupted work patterns due to the pandemic or other reasons, such as taking parental leave or having a chronic illness. It would also benefit those running small businesses, which typically have uneven income. The carry-forward cap would therefore provide the opportunity for those disadvantaged to “catch-up” if they have the capacity or choose to do so.

Using the carry-forward amounts is easy, you will first need to determine whether you have any carry-forward amounts, which can easily be found through the ATO. If you find that you do have unused concessional contribution cap amounts carried forward and want to make use of it, all you have to do is make concessional contributions that exceed the cap for the year. Currently, the cap is $25,000, so if you make a $30,000 worth of concessional contributions, $5,000 of your unused cap will be applied (provided you have $5,000 of unused cap amount).

Example

Trevor works as a sports-writer for a newspaper, his employer makes $10,000 of super guarantee payments (ie concessional contributions) to his super fund every year. His concessional contributions, the cap for the year, available unused cap and cumulative unused cap are as follows:

In the 2021-22 income year, Trevor wins the lottery and decides to put some of it into his super. Provided he has a total superannuation balance of less than $500,000, and assuming that his employer continues to make the usual $10,000 super contribution for the year, Trevor can make a maximum concessional contribution amount of $60,000 in the 2021-22 income year. This consists of the $15,000 unused for the 2021-22 year plus the $45,000 cumulative available unused cap from the previous years.

To take further advantage of the carry forward unused concessional contributions cap, individuals can combine this with making personal contributions which may generate a larger than normal deduction for a particular income year, which may be helpful to offset events where you receive a large amount of income or capital gains.