Whilst we are all struggling to keep up with the rate of change within the superannuation sector, this year there are some welcome changes which may help people boost their retirement savings and also save some personal income tax.
Carry forward concessional (tax deductible) contributions
With effect from 1 July 2019 superannuation fund members with a balance of less than $500,000 (on 30 June of the previous financial year) can make catch-up concessional contributions into their superannuation account. In order to use the catch-up rules you must not have used all of your $25,000 concessional contributions cap in the previous year.
Under the rules you can carry forward up to 5 years of unused concessional contributions caps in the previous financial year. The 5 year carry forward period started on 1 July 2018 meaning that this financial year is the first year you can make catch-up contributions.
These rules are best explained by use of an example:
- James who has a superannuation balance $200,000 was paid a salary of $100,000 and $9,500 superannuation guarantee contributions by his employer for the year ended 30 June 2019.
- James has carry forward unused concessional contributions of $15,500 ($25,000 – $9,500) available in the 2020 year.
- James, employer pays compulsory superannuation guarantee contributions for James in 2020 of $9,500.
- In these circumstances James can make an additional $31,000 concessional (tax deductible) superannuation contributions in 2020. This is calculated by adding the 2019 carry forward balance of $15,500 together with the additional amount available ($15,500) in the 2020 financial year.
Whilst James may have other priorities this strategy may be particularly helpful in years when taxpayers have a one-off significant increase in income (e.g. capital gain, bonus) and can reduce the personal income tax they may otherwise pay.
No work test for contributions in first year of retirement
Retirees aged between 65 and 74 will now be able to make voluntary contributions into their super account without needing to satisfy the work test. These rules can only be applied once and in the year immediately after the one in which the work test was met.
To qualify you must have had less than $300,000 in your super account at the end of the previous financial year.