Maximise concessional cap tax deduction
As we head towards the end of another financial year, it is time to consider various contribution strategies; one of these is the use of an unallocated contributions account.
An unallocated contributions account (or ‘contributions reserve’ as they are sometimes called) entitles the trustee to “warehouse” contributions for up to 28 days after the end of the month in which the contribution is made. This is enshrined is the Superannuation Industry (Supervision) Regulations 1994 (SIS Reg 7.08(2)).
As explained by the Australian Taxation Office (ATO) in Taxation Ruing TR 2010/1, contributions are eligible for deductibility in the year they are received by a superannuation fund; however, they are not counted towards the member’s contribution cap until they are allocated by the fund trustee/s to the member. Given the regulatory framework mentioned above, this can be some time after the contribution has been received.
Therefore, if a contribution to an SMSF is received in June 2025 but not allocated to the member until July 2025, it will:
- Be eligible for deductibility in the 2024/25 financial year, but
- Count towards the relevant cap in the 2025/26 financial year.
Let us have a look at a case study to illustrate the concept.
Case Study – Iain
Iain, 65 and retired, wishes to maximise his tax-deductible contribution to super in the 2024/25 financial year to offset his assessable income. He has not used any of his concessional cap for the 2024/25 financial year.
Iain can make a $30,000 concessional contribution in 2024/25, as well as a $30,000 concessional contribution in the month of June 2025, which will remain in an unallocated contributions account for the remainder of 2024/25 financial year, to then be allocated to him by the 28th of July 2025.
Iain will be able to utilise the tax deduction of $60,000 ($30,000 + $30,000) in the year of contribution (2024/25 financial year), but will not have an excess concessional contribution, as the $30,000 contributed in June 2025will be allocated to him by the trustees in the following year (2025/26 financial year).
If both contributions are to be made in June, it is best practice to contribute the amounts separately; so it is clear they are two distinct concessional contributions.
Taking it one step further….
The carry-forward concessional contribution 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.
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.
For example, Effie receives employer contributions of $15,000 in the 2024/25 financial year. An employer contribution is considered a concessional contribution and counts against the standard $30,000 concessional cap for the 2024/25 financial year. However, the difference between the two – $15,000 – can be claimed by Effie as a personal concessional contribution in the 2024/25 financial year or carried forward by Effie for up to the next five financial years to make a personal deductible contribution.
There are several key points regarding eligibility criteria for the carry-forward concessional contribution provisions:
- Effie’s Total Super Balance (TSB) must be less than $500,000 as at the previous 30 June to make the contribution
- Effie must have assessable income to offset the tax deduction
- The unused balance rolls forward for 5 years; after which time it expires if not used.
Using the unallocated contributions account with the carry-forward concessional contributions cap means eligible members can make a large personal deductible contribution to super and remain within their concessional contributions cap.
Case Study – Erin
Since 1 July 2021, Erin has received employer contributions of $10,000. She has not made or received any other concessional contributions. Erin has the following carry-forward concessional contributions available:
| 2021/22 | 2022/23 | 2023/24 | 2024/25 | |
| Concessional cap | $27,500 | $27,500 | $27,500 | $30,000 |
| Used | ($10,000) | ($10,000) | ($10,000) | ($10,000) |
| Unused | $17,500 | $17,500 | $17,500 | $20,000 |
| Cumulative | $17,500 | $35,000 | $52,500 | $72,500 |
In this current financial year, Erin incurs an assessable net capital gain of $102,500 on the sale of an investment property.
Subject to Erin’s TSB being less than $500,000 as at 30 June 2024, Erin can offset the capital gain of $102,500 by using her carry-forward concessional contribution ($52,500), the unused concessional contribution cap in 2024/25 ($20,000) and the concessional contribution cap for 2025/26 ($30,000) utilising the unallocated contributions account strategy.
Erin would need to ensure the $30,000 is contributed in June of 2025, so it can be allocated by the fund trustees to her by 28 July 2025 – the next financial year. This would then mean Erin could not make any concessional contributions in the 2025/25 financial year and may be in excess of her concessional cap if receiving employer contributions.
Keeping it all compliant
Where a member of an SMSF wishes to utilise such a strategy, the following are essential to ensure the strategy is successful:
- The fund’s trust deed allows for an unallocated contributions account strategy
- The contribution is allocated within the 28-day requirement
- There must be evidence of the receipt of the contribution
- 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 Regs
- A Section 290-170 “Notice of intent to claim or vary a tax deduction for personal super contributions” form [NAT 71121] (this is an ATO form required to claim personal deductible contributions).
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. 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 believe the member has exceeded their concessional contributions for the year.
What does Neo Super provide?
We are an innovative end-to-end SMSF service provider specialising in:
- SMSF administration and compliance
- Documentation services, including fund establishment, borrowing arrangements and pension documentation
- White label documentation and services for Intermediaries such as accountants and financial planners
- SMSF technical support, education, and training.
Further Information
For other service requirements, please contact our office at neo@neo-super.com.au or 1300 083 428.
