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Super Concessional Contributions

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As restrictions continue to ease, it almost feels safe to look ahead and think about retirement saving again. And, of course, the looming deadline on this front is June 30.

As always, there are contribution opportunities for some. It is vital to lodge the necessary paperwork.

Anyone still able to make super contributions who also has a high taxable income should ensure they have made full use of the $25,000 limit on “concessional contributions” for financial year 2020.

Concessional contributions are normally thought of as salary-sacrifice and superannuation guarantee contributions. They are called “concessional” because if an employer pays this money as superannuation rather than salary, there is less tax taken out – superannuation funds pay tax at lower (concessional) rates than these individuals pay on their salary.

But in fact any of us can make concessional contributions.

If you didn’t get around to asking your employer to make extra concessional contributions (salary sacrifice) this year, you have until midnight on June 30, 2020, to make some yourself. To do so, simply make sure you get the money into your fund this financial year, lodge the necessary paperwork with the fund and claim a personal tax deduction for some or all of it.

The amount claimed as a tax deduction will be treated as a “concessional contribution”. But it is vital to lodge the necessary paperwork.

Remember that the $25,000 limit applies to all concessional contributions – both those made by an employer and those we make personally.

While we still talk in terms of a $25,000 limit for concessional contributions, it is worth remembering that these days the limit might be higher for someone who didn’t use their full $25,000 in the 2019 financial year.

Someone still able to make contributions now and who had less than $500,000 in superannuation at June 30, 2019 has an extra opportunity.

Let’s say Josh is in this position and can make extra concessional contributions now to “catch up” on last year’s missed opportunity. Let’s say his concessional contributions added up to $15,000 in fiscal 2019 and so far his employer has contributed $20,000 for the year ending June 30.

Josh can actually put an extra $15,000 of concessional contributions into his super this year ($5000 for this year and $10,000 for last year).

In the past, there has always been a heightened sense of urgency around this time of year as the deadline looms for making contributions. When it comes to concessional contributions, some people can now afford to miss the deadline.

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Josh – for example – could double check that his super balance is still comfortably below $500,000 and is likely to stay that way until at least June 30, 2020. As long as it is, he will have the opportunity to put his “extra” concessional contributions in next year.

In fact that might even suit him better. What if he expects to have a higher level of income next year? Perhaps his salary has just gone up or he plans to sell some shares or an investment property and make a capital gain.

Given that concessional contributions are contributions for which he claims a personal tax deduction, it’s worth thinking about when the tax deduction might be more useful for him – is it this year or next year?

If it’s next year, then he should relax for now and get the extra money into super in financial year 2021. Fortunately for him, the “catch up” rules mean he can wait without missing out on anything. It does put a new spin on rushing to meet a June 30 deadline.

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