2020 Year - Catch-up deductible Contributions

The issue of making tax deductible contributions has been available for a few years and used by many taxpayers OR through salary sacrifice.

But many may be unaware of the CATCH-UP provision which commenced as law in 2019 year BUT only impacts 2020 year deductions...and future years.

What is this rule ?
The catch up rule allows a taxpayer with a superannuation balance that is LESS THAN $500,000 to catch-up in 2020 year for the shortfall between their available cap ($25K) and actual contributions.
eg Luke has a employer and his employer contributions (incl any salary sacrifice) in the 2019 year was $19.500. He has a unused cap of $5,500. Therefore if his total superannuation balances are under $500,000 at 30 June 2019 his 2020 year cap is $30,500. If he has a super balance of $500,000 or more at 30/6/19 his 2020 cap is $25,000

What is my unused 2019 cap ?
Good news. The ATO now keep records and share this. Its available to MyGov users. But if you are not a MyGov user I dont recommend starting to be one now. Your tax agent can access this information from the Tax Agent Online Services (under the Super tab for each taxpayer). The available information includes:

• Total super balance incl fund name, USI and Account number + Balance (30 June 2019)
• Bring Fwd (3 year rule) if applicable
• Concessional Contributions - Cap and actual amounts for the PAST financial year
• Employer Constributions : Fund reports CURRENT YEAR contributions for each employer incl amounts and last date paid
• Transfer Balance Cap for taxpayers receiving any super pensions.

eg : Leia's ATO information indicates
Financial year 2018-19
Concessional Contribution Cap $25,000.00
Contributions counting towards your client's cap $11,168.08
Unused concessional contributions cap $13,831.92​

How can I use this information NOW to assist me ?
This takes some care. Its easy to breach caps - Usually because a employer isnt consistent with when they pay super. However you do have some leeway. I will explain more below.

1. You could pre-estimate the annual employer contributions eg Darth earns $130,000 + super of 9.5%. His employer pays super like a clock. The annual amount is paid weekly. Darth estimates he will have employer contributions of $12,350. He then realises he gets a bonus. Its usually approx $5,000 so he adjusts for this and his projected concessional contributions are $12,825

2. He could salary sacrifice with the employer.

3. She could delay a decision and in June 2020 re-review the contributions. Then obtain her available bring forward cap using MyGov or her tax agent.

eg Leia finds the contributions at 18 June 2020 are $20,000. Her bring forward cap is $13,831 + $25K = $38,831. Leia could contribute $38,831 to rest on that date based on all sources of contribution. She projects that the employer will pay $20K so her contribution is $18,831. Ideally Leia should consider her final taxable income. She doesnt want it to be under $37K. after claiming the deduction.

Leia may then wait until her return is being prepared. [email protected] will check the ATO data and may find that the actual contributions at 30 June have slightly increased and are now $20,500 as Leia forgot she worked for the electoral commission. So she submits a request to claim a deduction of $18,331. She has avoided breaching her cap and claimed the maximum
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4. They could defer the issue until 2021 assuming that the law will not change in that time. It is not expected that the coalition will seek a new election. This can be particularly effective for a taxpayer who has a large capital gain expected. Every dollar of extra contribution could be a tax saving at the marginal rate + more ! Its also a sound strategy for a taxpayer who may have a period without work who wants to catch up super. They may plan an improved tax benefit.

eg Luke may have a total concessional cap of $25,000 + 13,000 (2019) and $12,000 (2020) at 30 June 2020. Their employer contributions are expected to be $19500 in the 2021 year. Their super balance is $420,000. at 30/6/2020. They expects to sell their investment property and trigger a taxable gain of $125,000. They want to maximise the super deduction to offset this extra income at their top marginal tax rate. They sells the property and make a personal concessional contribution of $30,500. The extra tax to the fund at 15% is $4575 but the personal deduction benefit saves tax of $14,335. They avoid Div 293 tax of up to a further 15% tax on the $50,000 concessional contributions. A further saving of $7500​

It is my personal belief that taxpayers who may be thinking of this tax strategy should use the services of a superannuation competent tax adviser. Taxpayer ages in their 50s and 60s may particularly benefit from tax effective contribution planning and strategies and want to avoid the many perils of error that can occur eg
- Calculation errors
- Not checking fresh contribution data
- Timing issues
- Changed circumstances and
- Tax Planning mistakes or assumptions
- Timing errors on when they complete the notice to deduct (my view is wait !!)