One way to potentially reduce your tax bill is to take advantage of the carry-forward rules for concessional superannuation contributions. Introduced in the 2019-20 financial year, this rule allows you to make additional concessional contributions or pre-tax payments above the $27,500 limit towards your super.
Prior to the carry-forward rules, if you contributed less than the full cap amount in a year before the rules were introduced, you lost out on the tax dedication for the remaining balance. According to multi-national audit, tax and consulting firm RSM senior manager Cameron Sloan, paying additional money into your superannuation account is a popular way to reduce tax liability.
Advertisement
"Superannuation contributions is a pretty popular one. That's where you put money into super and claim it as a tax deduction. This is one a lot of people consider if they have some spare money," Mr Sloan said.
"It used to be a use it or lose it system. So you used to be able to put [up to] $27,500 in, but if you only put $10,000 in, then next year you can't catch that up. What [the ATO] has changed is that you've got a five-year period to look back and say, 'Well, I didn't make all the contributions that I could have in 2019, and I'd like to do that [now]," he said.
There are eligibility criteria to be aware of, including having a total super balance of less than $500,000 in the previous financial year.
Superannuation contributions is ... where you put money into super and claim it as a tax deduction.
- Cameron Sloan, senior manager, RSM
You'll also need to keep in mind the annual concessional cap amounts of $27,500 beginning FY 2021-22 and $25,000 from FY 2017-18 to FY 2020-21 to ensure that you're not exceeding total cap amounts in any one financial year.
Unused cap amounts are also only available for a maximum of five years, meaning that an unused cap amount from 2018-19 will expire at the end of 2023-24.
The Australian Tax Office (ATO) recommends checking your available concessional contributions through their online services accessed through myGov.
If this all sounds a little overwhelming, don't worry. The ATO has information on the carry-forward rule and annual cap amounts available on its website. You can also speak with a qualified tax accountant or financial adviser for advice specific to your situation.
