Q. Could you please explain how the Superannuation “Catch Up provisions” that came into effect from 1 July 2019 will work. I am 57 and have a Super balance of $410,000. I earn $110,000 a year and have only received the 9.5% Employer Superannuation Contributions.
A. From 1 July 2018, individuals with a Superannuation balance of less than $500,000 will be able to carry forward their unused Concessional Contribution Cap for up to five years.
The Concessional Contribution Cap refers to the limit on the Concessional Superannuation contributions you can make in a Financial Year. This includes salary sacrifice and compulsory employer contributions, as well as any personal contributions which you may claim as a tax deduction in your tax return. The cap for the 2018-2019 Tax year is $25,000.
Amounts of unused Concessional Contribution Cap arise when you have not fully used your Concessional Contribution Cap in a tax year. Individuals will be able to utilise their unused Concessional Contribution Cap on a rolling basis for a period of five years. Amounts that have not been utilised after five years will expire.
In your case, as you earn $110,000 and receive 9.5% Employer Superannuation Guarantee Contributions, you receive $10,450 of Concessional Contributions. Assuming you make no additional Concessional contributions in this financial year, you will be eligible to carry forward $14,550 of unused Concessional Contribution Cap into future financial years from the 2018-19 tax year.
If you made no additional contributions in the 2019-20 tax year, in the 2021-22 financial year you would be able to contribute $29,100 of your unused CCs cap amounts to make CCs of up to $54,100 including your Employer’s SGC contribution of $10,450.
To be eligible to contribute to Superannuation you will need to be either under age 65 or satisfy the work test of 40 hours in a 30 day period in the tax year prior to making a contribution if older than 65 up to age 75.
Q. We own an investment property with substantial Capital gains that we intend to sell in 5 years’ time in preparation for Retirement. Can we use Superannuation to reduce the impact of Capital Gains tax?
Whilst the Superannuation “Catch Up provisions” are intended to allow those with broken work patterns to make catch-up Concessional Contributions, it is quite possible that the strategy can be used to make a large one-off contribution, maybe to reduce the impact of capital gains tax in a future financial year. Assuming a Concessional Contribution Cap of $25,000 p.a., it would be possible to make Concessional Contributions of up to $150,000 in a single year i.e. five years of catch-up and a current year Concessional Contribution Cap.
Provided that your Superannuation balance is less than $500,000, you do not exceed the contribution caps and you satisfy the requirements to be eligible to make Superannuation contributions, there is no reason you cannot use the Superannuation “Catch Up” provisions to offset Capital Gains.