• Federal Budget 2016 - Individuals

Superannuation – Catch-up concessional contributions

From 1 July 2017, members with superannuation balances of less than $500,000 will have the ability to make additional concessional contributions up to the sum of their unused cap amounts. The unused cap amount is the total of the concessional contribution cap amounts that have not been utilised in previous years.

Unused cap amounts

The accrual of unused cap amounts commences on 1 July 2017, and the amounts will be carried forward on a rolling basis for a period of five consecutive years.

This measure will also apply to defined benefit schemes.

Compliance impacts

Clarification is required as to how this measure will work with the personal concessional contribution deduction available to individuals, especially given the abolition of the 10% rule which required an individual to earn less than 10% of their income from employment to be entitled to a tax deduction for personal contributions.

A potential restriction on the unused concessional cap amount may be that no deduction is available where a personal concessional contribution could not have been made in a previous year, because the individual did not have sufficient taxable income to claim the deduction in their Individual Income Tax Return. It is possible that the unused concessional cap may be restricted to the amount that could have been claimed in the available previous years.

If not, individuals may see an advantage in holding off on making contributions into superannuation until they have sufficient taxable income to claim the deduction.

BDO Comment

While the flexibility to make additional concessional contributions on unused cap amounts does provide some relief for irregular working circumstances (such as mothers and fathers, carers, farmers, and start-up businesses), restricting access to the catch-up option to individuals with balances of $500,000 or less, disadvantages older Australians who are closer to retirement.