Carry Forward Contributions Explained
If you’re just starting to look at additional super contributions for the first time and feel you should’ve been contributing more in the past or maybe you’ve got a large capital gain this year and are looking for ways to reduce your tax, then you’ve come to the right place. There is a little known way to contribute a large amount into super and reduce your tax – carry forward contributions.
Please Note: Any advice on this page is general in nature and does not take into account your objectives, financial situation or needs. Consider whether this is right for you. See full disclaimer.
What are Carry Forward Contributions?
Carry forward contributions allow individuals to make concessional (before tax) contributions to their superannuation above the annual contribution caps by utilising unused amounts from previous financial years. So, if you haven’t used your full contribution limits in previous financial years, you can carry forward these amounts to future years.
You can carry forward unused amounts of 5 previous financial years. Bear in mind the concessional contribution cap from 1 July 2017 to 30 June 2021 was $25,000, from 1 July 2021 to 30 June 2024 $27,500 and from 1 July 2024 $30,000.
How do they work?
Let’s have a look with an example:
Say you haven’t made any contributions to your super above what your employer puts in but this year you’ve come into some money and want to put it to work in a tax effective way.
You can not only contribute extra funds up to your cap for this financial year but can use any unused amounts from the previous 5 financial years. Let’s just say your employer has contributed $10,000 each year. This means you have $17,500 left over for the current and previous two financial years because the cap for those years is $27,500 and $15,000 for the 18-19 to 20-21 because the cap then was $25,000.
See the table below to see the amount contributed per year, the contribution cap for that year and the amount remaining.
As you can see the total of the unused amounts for this financial year and the previous 5 years is $97,500. This is the maximum amount that could be contributed concessionally (pre-tax) this year.
| Financial year | Contributions | Contribution Cap | Remaining |
|---|---|---|---|
| 23-24 | $10,000 | $27,500 | $17,500 |
| 22-23 | $10,000 | $27,500 | $17,500 |
| 21-22 | $10,000 | $27,500 | $17,500 |
| 20-21 | $10,000 | $25,000 | $15,000 |
| 19-20 | $10,000 | $25,000 | $15,000 |
| 18-19 | $10,000 | $25,000 | $15,000 |
| Total | $60,000 | $157,500 | $97,500 |
Who Can Benefit from Carry Forward Contributions
Anyone can benefit from carry forward contributions provided they meet the eligibility requirements.
If you’re eligible, carry forward contributions are a great way to grow your wealth and reduce your income tax. There are circumstances where carry forward contributions can be particularly beneficial. Here are a few scenarios:
Individuals Approaching Retirement
As retirement approaches, people often want to boost their super as much as possible as super will be providing their income in retirement. Carry forward contributions allows them to do this. Afterall the main downside for contributing extra to super is that it’s locked away until retirement. As retirement approaches this ceases to be a major factor.
Self-Employed
Self-employed individuals often have irregular income streams. Some years business is booming and in others all available funds may be needed. Carry forward contributions allow business owners to make large contributions in the boom years to make up for years of no contributions.
Seasonal Workers
Individuals whose income varies significantly from year to
year, such as seasonal workers, can make use of carry forward contributions
during years of higher income to offset years of lower income.
People With a Realised Capital Gain
If someone sells a property, shares or other investment asset that has had a large capital gain, half that capital gain (provided they have held it for more than 12 months) is added to their taxable income for that financial year. By utilising carry forward contributions that individual can reduce their income back down by contributing the proceeds up to the carry forward caps into their super.
Eligibility for Carry Forward Contributions
You must be under the age of 75. Your contribution must be received by your super fund no later than 28 days after the end of the month you turn 75.
You must have a total super balance of less than $500,000 at 30 June of the previous financial year.
Unused concessional cap amounts can only be carried forward for five years. For example: The 2023/24 financial year is the last year to use any unused concessional contributions cap from the 2018/19 financial year.
Contributions must be made in the financial year you are wanting to claim the deduction in.
How to Make Carry Forward Contributions
To utilise carry forward contributions you just have to make concessional contributions above your current years concessional contribution cap. You can do this via salary sacrifice or by making a non-concessional contribution via Bpay or EFT and then submitting a Notice of intent to claim or vary a deduction for personal super contributions to your fund which will turn your non-concessional contribution into a concessional contribution.
You don’t need to notify anyone or request contributions to be carry forward, it will automatically happen if you’re eligible.
The easiest way to check how much you can carry forward is by logging onto MyGov and navigating to the super menu under the ATO section where a running total is provided.
Tax Implications
Remember that although Carry forward contributions reduce your income tax you still have to pay super contributions tax. This is typically 15% of contributions. However, if your combined income and concessional contributions is $250,000 or more an additional 15% tax is applied called Division 293 tax.
If your contributions exceed the amount you’re eligible to carry forward then the excess contributions are taxed at the top tax rate.
If tax reduction is a primary motivator it’s important to first, find out how much you can carry forward, then calculate what your income tax reduction will be and what your contributions tax will be to see your total tax savings so you can make an informed decision. You may find that it’s better to spread carry forward contributions over multiple years or if your income is low for this financial year it’s better to wait for another year when you expect your income to be higher.