Think about investing your extra earnings into super this year.
Australia has seen property prices rising throughout the country, and a surge in buyer demand. A number of economists have forecast property prices will grow by 5-10% both this year and next, with some forecasting a sustained housing boom and 20% growth by the end of 20221.
If you are working within the real estate industry, you might be experiencing the benefits associated with this surge in the way of receiving increased commission earnings. If you haven’t experienced this already, the forecast is looking like you could be very soon!
If you have increased earnings, think about your investment options as super could be an investment option that could financially benefit you.
Investing in super using empowering super rules
People sometimes think of super as a closed box. But it’s actually the opposite as Australian super rules are very empowering for individuals.
Your super could be the investment you have that may offer you a favourable tax treatment over time, and there are two super rules you might be able to take advantage of right now, and into the future, to financially benefit you. Depending on your financial situation, these two rules could be used together, or singly.
As with any financial situation, be sure to seek financial and tax advice to inform your decisions. Don’t forget that super is an investment in itself with many advantages, and you have the power to direct it.
1. Carry-forward rule – (before tax contributions)
Carry-forward contributions were introduced to make it easier for people with interrupted or non-standard work patterns to be able to make ‘catch-up’ contributions for their retirement, should their circumstances change. As the ATO states2; from 2019-20, carry-forward rules allow you to make extra concessional contributions – above the general concessional contributions caps – without having to pay extra tax.
The
carry-forward rule simply allows you to use any unused concessional (before-tax) contributions cap on a rolling basis for five years.
If you have a total super balance of less than $500,000 from the previous financial year, you can carry-forward any unused concessional caps on a rolling 5-year basis.
Annual concessional contribution caps (or limits)
| Financial Year |
Contribution cap |
| 2019 - 2020 |
$25,000 |
| 2020 - 2021 |
$25,000 |
| 2021 - 2022 |
$27,500 |
| 2022 - 2023 |
$27,500 |
| 2023 - 2024 |
$27,500 |
This means if you don’t contribute the maximum annual allowable amount into your super, you can increase your contributions in following years by those unused amounts (for a maximum of five years, after which they will expire) by using the carry-forward rule.
This rule applies from 1 July 2018. This means that the 2020 financial year is the first year in which you can top-up your super contributions by the carry forward amount.
Unused concessional cap carry-forward
| Description |
2017 - 2018 |
2018 - 2019 |
2019 - 2020 |
2020 - 2021 |
2021 - 2020 |
| General contribution cap |
$25,000 |
$25,000 |
$25,000 |
$25,000 |
$27,500 |
| Total unused cap available |
n/a |
$0 |
$22,000 |
$44,000 |
$69,000 |
| Maximum cap available |
$25,000 |
$25,000 |
$47,000 |
$25,000 |
$96,500 |
| Super balance 30 June prior year |
n/a |
$480,000 |
$490,000 |
$505,000 |
$490,000 |
| Concessional contributions |
nil |
$3,000 |
$3,000 |
nil |
nil |
| Unused concessional cap accrued in relevant financial year |
$0 |
$22,000 |
$22,000 |
$25,000 |
$27,500 |
Source: ATO Concessional contributions cap
Carry-forward example
All figures represented throughout this article is in today’s dollars. Case studies are for illustrative purposes only. Please speak to your financial adviser to see if this is appropriate for your financial situation.
2. Bring-forward rule – (after tax contributions)
As the Australian Taxation Office (ATO) explains, the bring-forward rule allows those under 65 years old to bring forward future annual non-concessional (after tax) contributions cap entitlements, based on their total superannuation balance as at 30 June the previous financial year. This could mean up to $300,000 – or three times the current $100,000 annual non-concessional contributions cap – into your super in one financial year.
Annual non-concessional contribution caps (or limits)
| Financial Year |
Non-concessional contribution cap |
| 2020 - 2021 |
$100,000 |
| 2021 - 2022 |
$110,000 |
Amounts over the non-concessional cap are taxed at 47% for the 2020–21 financial year. Essentially, those who use the rule are ‘bringing forward’ their next two years of caps into the current year.
It’s worth noting, if you trigger the bring-forward rule, the concessional contribution cap for the financial year that it was triggered will still apply, even if the following year (e.g. 2021-22) the concessional contribution cap increases.
Example: A single contribution
- Alan is 60 years old and has a total super balance of $1.3 million as at 30 June 2019.
- He makes a single non-concessional contribution of $300,000 to his super fund in 2019–20.
- This triggers the bring-forward arrangement as it exceeds the annual non-concessional contributions cap of $100,000.
- As Alan's total super balance is less than $1.4 million, he has a three-year bring-forward period (2019–20 to 2021–22) with a cap of $300,000.
- Therefore, Alan can't make any more non-concessional contributions in 2020–21 or 2021–22 without exceeding the cap as his remaining cap is nil.
Everyone’s circumstances are different, and many different strategies can be explored and applied. We would recommend visiting the ATO’s website to view a number of case studies.
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The information contained in this article does not constitute financial product advice. REI Super does not give any warranty to the accuracy, completeness or currency of the information provided. Although REI Super makes every reasonable effort to maintain current and accurate information, you should be aware that there is still the possibility of inadvertent errors and technical inaccuracies. These case studies are for illustrative purposes only. They are not to be taken as personal advice and are intended to provide general information only. They do not take into account your individual needs, objectives or personal circumstances. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Past performance is no indication of future performance. Member should obtain and read the Product Disclosure Statement for REI Super before making any decisions. REI Superannuation Fund Pty Ltd ABN 68 056 044 770, AFSL 240569, RSE L0000314 Trustee of REI Super (ABN 76 641 658 449), RSE R1000412, SPIN REI0001AU, RSE R1000412. MySuper unique identifier 76641658449129. April 2021.