Technical expert highlights carry-forward contributions strategy

An unallocated contribution account, he said, entitles the trustee to warehouse contributions for up to 28 days after the end of the month in which the contribution was made. This is enshrined in the Superannuation Industry (Supervision) Regulations 1994 under Regulation 7.08(2).

“This means if a contribution to an SMSF is received in June 2022 but not allocated to the member until July 2022, it will be eligible for deductibility in the 2021-22 financial year, but count towards the relevant cap in the 2022-23 financial year,” he said.

For SMSF clients that are eligible to use the carry-forward rules, it may be possible to take this strategy one step further.

“The carry-forward rules allow an SMSF member to make extra concessional contributions – above the general concessional contributions cap – without triggering an excess and thus having to pay extra tax,” he explained.

“The carry-forward arrangements involve accessing unused concessional cap amounts from 1 July 2018. An unused cap amount occurs when the concessional contributions made in a financial year were less than the member’s general concessional contributions cap.”

Mr Ali gave the example of Betty, who receives employer contributions of $14,250 in the 2021-22 financial year.

“An employer contribution is considered a concessional contribution and counts against the standard $27,500 concessional cap for the 2021-22 financial year. However, the difference between the two – $13,250 – can be claimed by Betty as a personal concessional contribution in the 2021-22 financial year or carried forward by Betty for up to the next five financial years to make a personal deductible contribution,” Mr Ali noted.

There are several key points regarding eligibility criteria for the carry-forward concessional contribution provisions, he cautioned. The member’s total super balance must be less than $500,000 as of the previous 30 June to make the contribution. They must also have the assessable income to offset the tax deduction.

He also noted that the unused balance rolls forward for five years and expires if not used. 
 
“Using the unallocated contributions account with the carry-forward concessional contributions cap means eligible members can make a sizeable personal deductible contribution to super and remain within their concessional contributions cap,” said Mr Ali. 

He gave another example of Snow, who received employer contributions of $10,000 each year since 1 July 2018 and has not made or received any other concessional contributions.

In this current financial year, Snow incurs an assessable net capital gain of $90,000 on the sale of an investment property.

“Subject to Snow’s TSB being less than $500,000 as at 30 June 2021, Snow can offset the capital gain of $90,000 by using her carry-forward concessional contribution ($45,000), the unused concessional contribution cap in 2021-22 ($17,500) and the concessional contribution cap for 2022-23 ($27,500) utilising the unallocated contributions account strategy,” said Mr Ali.

“Snow would need to ensure the $27,500 is contributed in June of 2022, so it can be allocated by the fund trustees to her by 28 July 2022 – the next financial year. This would then mean Snow could not make any concessional contributions in the 2022-23 financial year and maybe in excess of her concessional cap if receiving employer contributions.”

Mr Ali said for any clients wanting to use this type of strategy, there are some important compliance considerations.

For example, the fund’s trust deed allows for an unallocated contributions account strategy, and the contribution must be allocated within the 28-day requirement, he said.

There must be evidence of the receipt of the contribution. Mr Ali said there needs to be a trustee resolution detailing the trustee’s decision to defer the allocation of the contribution until the next financial year as per Regulation 7.08(2) of the SIS Regulations.

The trustee is also required to complete a section 290-170 “Notice of intent to claim or vary a tax deduction for personal super contributions” form [NAT 71121].

“Trustees should also ensure the ATO is notified of the use of the strategy by completing and lodging a ‘Request to adjust concessional contributions’ [NAT 74851] by the time the fund’s SMSF annual return and the individual’s income tax return are lodged,” he said.

“This is important, otherwise, the contribution will be reported in the SMSF annual return in the year in which it was received, which may mean the ATO may believe the member has exceeded their concessional contributions for the year.”