Keep Calm and Carry Forward

Maximise Your Super Contribution Cap with Carry-Forward Concessional Contributions

Over the last decade, Australians have experienced relatively stagnant marginal tax rates, resulting in bracket creep and some of the highest marginal tax rates globally. With significant tax reform seemingly elusive, workers face a choice when thinking about retirement planning: wait for change or explore strategic opportunities within the current tax system. One such opportunity, often overlooked, is the carry-forward concessional contributions – a sleeping giant that could dramatically improve retirement savings and reduce tax liabilities.

Understanding the Super Contribution Cap: How Carry-Forward Rules Work

Carry-forward concessional contributions, also known as “catch-up contributions,” were introduced as part of the 2016 Federal Budget and came into effect on 1 July 2018. These rules allow individuals to use unused portions of their super contribution cap from previous financial years, up to five years later, provided their total superannuation balance is under $500,000 at the start of the financial year.

This measure was designed to assist those with interrupted or non-standard work patterns, including individuals who take career breaks for caregiving, study, or health reasons, as well as those with fluctuating incomes. By allowing people to “catch up” on missed superannuation concessional contributions, the carry-forward rule has made saving for retirement more flexible and accessible.

It’s important to note that concessional contributions include employer contributions (such as Super Guarantee), salary sacrifice contributions, and personal contributions claimed as a tax deduction. For the 2024–25 financial year, the concessional contributions cap is $30,000, up from $27,500 in the previous year, offering more room for strategic planning.

The Maximum Super Contribution Strategy: Applications Beyond the Basics

While the primary intent was to help individuals fill gaps in their superannuation savings, carry-forward contributions offer several strategic advantages under the right circumstances:

• Self-Employed Individuals: Those with variable earnings can make larger contributions during high-income years to maximise tax benefits, still staying within their maximum super contribution limits.
• Returning Australians: Individuals rejoining the workforce after time overseas can leverage unused caps to rebuild their super quickly and efficiently.
• Capital Gains Tax Events: Those facing a large taxable gain, such as from the sale of an investment property, can use this strategy to offset their tax liability while boosting their retirement savings.

By timing these contributions strategically, individuals can avoid breaching the super contribution cap while still taking full advantage of their available catch-up amounts.

Real-Life Impact: How the Super Contribution Cap Helped Helena and John

Consider Helena, whose income has steadily increased from $120,000 to $150,000 over the last five years. Helena discovers she has $55,000 in unused carry-forward concessional cap space. With the help of an accountant and financial adviser, she contributes this amount to her super in one year, claiming a tax deduction. After accounting for the 15% contributions tax, Helena saves approximately $10,000 in income tax (net of contributions tax), reducing her effective tax rate from 27% to under 20% for the financial year.

Now imagine John, who sells his investment property in 2025, resulting in a taxable capital gain of $150,000 after the 50% CGT discount. With his higher income pushing him into a top tax bracket, John uses the carry-forward rule to contribute $45,000 in unused caps from the past three years to his superannuation. This move significantly reduces his taxable income and his overall tax liability, while also strengthening his retirement fund.

Why Carry Forward Concessional Contributions Matter

Carry-forward concessional contributions are a powerful and flexible tool for retirement planning, enabling individuals to maximise their superannuation concessional contributions while strategically managing tax liabilities. By utilising unused caps, Australians can take greater control of their financial future, reducing taxable income and securing long-term wealth.

Whether responding to life’s interruptions or capitalising on high-income years, this strategy can be significant for anyone serious about optimising their retirement savings and navigating Australia’s complex tax landscape. As the concessional contributions cap has increased for 2024/ 2025, this opportunity becomes even more valuable.

For workers feeling the pinch of bracket creep, carry-forward concessional contributions could be the key to transforming their financial outlook. As Australians continue to grapple with high marginal tax rates, this sleeping giant deserves attention – not only as a tax-savvy strategy but as a cornerstone of effective superannuation planning.