Most Australians know they can claim a tax deduction when they contribute money into super. What many people don’t realise, however, is that some people can make larger tax-deductible contributions by taking advantage of a little-known rule called catch-up concessional contributions.
It sounds technical, but the concept is actually quite simple.
Each financial year there is a limit on how much you can contribute into super as a tax-deductible (or concessional) contribution. This includes employer Super Guarantee contributions, salary sacrifice contributions, and any personal contributions that you claim as a tax deduction.
If you don’t use all of that annual limit, you may be able to carry the unused portion forward for up to five financial years.
Think of it as having “unused contribution credits” sitting in reserve, ready to use later when it suits you.
Why would someone use this strategy?
Life doesn’t always follow a straight line. Some years you might be focused on paying off the mortgage, raising children or funding school fees, leaving little room to contribute extra into super.
Later on, circumstances can change.
Perhaps you’ve:
- sold an investment property or business,
- received an inheritance,
- earned a large bonus,
- had a particularly profitable year in business, or
- simply found yourself with more disposable income.
Rather than paying tax on that additional income, you may be able to make a larger deductible contribution into super and reduce your taxable income at the same time.
For many Australians, this can result in thousands of dollars of tax savings while also boosting retirement savings.
Who can use catch-up contributions?
There is one important rule.
Your total super balance must have been less than $500,000 on 30 June of the previous financial year.
If your balance is above this threshold, the catch-up rules are unfortunately not available.
If you’re under the threshold, however, you may have several years’ worth of unused contribution caps waiting to be utilised.
A simple example
Imagine Sarah received a $60,000 work bonus this year.
Over the past few years she hadn’t been making additional super contributions because she was busy paying down her home loan. As a result, she has accumulated $35,000 of unused concessional contribution cap.
Instead of paying tax on her entire bonus, Sarah contributes part of it into super and claims a tax deduction.
The result?
She pays less personal tax while increasing her retirement savings in one transaction.
It’s a strategy that can be particularly valuable for people in higher tax brackets.
Don’t assume you’re eligible
While the strategy sounds straightforward, there are several rules that need to be checked first, including your available unused contribution cap, your total super balance, your taxable income and ensuring contributions are received before the relevant deadlines.
The Australian Taxation Office keeps track of your available unused concessional contributions, but it’s important to confirm your eligibility before making any decisions.
If you’ve experienced a higher-income year, sold an asset or simply want to make the most of your superannuation opportunities, it may be worth speaking with your financial adviser or accountant to see whether catch-up concessional contributions could work for you.
Sometimes the best tax strategies aren’t new at all—they’re simply the ones most Australians never knew they already had available.
As always, seek the advice of your SWU Group adviser before you consider this strategy.