The ‘Concessional Catch-up Rule’ (catch-up rule) was introduced by the government a couple of years ago and provides individuals with superannuation balances less than $500,000 greater flexibility when making concessional contributions. From 1 July 2018, individuals have been able to accumulate unused concessional caps and utilise the difference in future financial years.

Concessional contributions are a valuable retirement planning tool that can enable Australian’s to build a retirement nest egg whilst also receiving valuable tax concessions in the process.

Why make concessional contributions?

Concessional contributions are a great way to reduce tax, as these contributions are those which are either sourced from pre-tax monies (before tax is paid at your marginal tax rate (MTR)), or voluntary contributions for which you intend to make a tax deduction claim. In both situations, the result is that rather than being taxed at your MTR, which could be up to 47% including Medicare levy, you are instead taxed at either 15% or 30% for high income earners. This means that so long as your MTR is lower than the applicable superannuation tax rate, there is a tax benefit to be had.

The introduction of the catch-up rule is great news for those with low superannuation balances with plans to boost their savings in preparation for retirement. However, there is also room for creativity in its use, where strategies can be devised to assist in the minimisation of large tax bills in future years.

In order to be eligible to utilise the Concessional Catch-up Rule, you must satisfy the following criteria

• Be eligible to make concessional contributions: it is a requirement that you be eligible to contribute to superannuation in order to utilize this rule.
• Have a Total Super Balance (TSB) of less than $500,000 at the end of the preceding financial year: in order to be eligible, you must have a TSB less than $500,000 as of 30 June of the previous financial year. Your TSB is the total sum of all funds held within the superannuation environment and includes those held in accumulation, pension, defined benefit and those funds in transit due to a rollover between funds.
• Have unused concessional caps from the past 5 financial years: it is unlikely for anyone to meet this criterion at this moment, as due to the recent nature of this legislation you have only been able to accumulate unused caps from 1 July 2018 onwards. This means that at the time of writing, only 2 financial years are readily available to be brought forward.

The following table illustrates how the accumulation of unused caps can play out going into the future:

Tax planning strategies utilising the catch-up rule

The introduction of the carry forward rule has opened the doors to some creative tax planning strategies, as eligible individuals can take advantage of unused concessional caps to reduce tax payable. We can see this being exceptionally valuable going forward for those with an investment property, business asset sale or share portfolio with a large unrealised capital gain tax (CGT) liability. Essentially, if an investor knows that they will generate a large capital gain and consequently incur a large tax bill, the catch-up rule could be used to their advantage.

If you would like to discuss how this could be applicable to you or if you are interested in discussing your broader financial goals & objectives, please contact one of our advisers for a no obligation discussion.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Everyone needs a financial plan and everyone should make a plan that suits their particular circumstances.

You can make your own financial plan that will set you on the path to good financial health. The first, and possibly the most important part is goal setting.

We’ve talked about goals here before, so it’s important to remember to set SMART (specific, measurable, achievable, realistic and time-based) goals. You will need to think about what you want in the short-term, which might be anywhere from now through to 3-4 years, the medium-term which could be from 5-8 years and then long-term goals that look well into the future.

An example of a short-term goal is to finance a new car in 2 years’ time, a medium-term goal might be to save enough for a deposit on a house within 5 years and a long-term goal could be that you don’t want to rely on social security payments when you retire.

It does not matter whether the goal is a short-term or a long-term one, the means to achieving every one of those goals is the same!

You must first look at your income and expenses. Make a budget, this is a pretty simple thing to do these days with a proliferation of budgeting and cashflow apps available, the MoneySmart website is always a good place to begin.

Now you have made your budget and identified that you have some surplus income that you can direct towards saving for your goals, but the critical thing then is to stick to it! You must be very disciplined in ensuring that the identified savings part of your salary goes into your savings and stays there. It’s worth checking with your pay office to see if they will pay your salary into 2 different accounts, but if not, then you must make the transfer as soon as your pay comes in or set up a regular direct debit to occur at that time.  You must also avoid drawing from that account until you are ready to buy the object for which you have been saving.

Unfortunately, in the current economic climate you aren’t going to get much help in growing your savings account via interest payments. This means that you will need to shop around to find an account that pays at least some interest, and as your savings grow, you may be able to use term deposits or other high interest savings accounts for a larger balance.

This will matter to you less when you’re saving for a short-term goal than it will if you are looking at long-term savings. If your goals are long-term, the best course of action is to contact a financial adviser to assist, as you will need their expertise to advise you in relation to how to invest your funds and where to invest them.

Don’t hesitate to call one of our friendly advisers to assist you with your financial progress.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Retirement presents a number of new challenges as well as uncertainty for many Australians. The current economic volatility and low return on cash savings are increasing drivers for Australians seeking advice. It is important to obtain appropriate and tailored advice as it will help retirees navigate the change from saving for retirement to relying on your savings during retirement.

The danger of running out of money is the second biggest worry for retirees, with 53% of Australians concerned about outliving their savings. (National Seniors Australia 2020[i])

There are many ways we can provide value when planning for retirement:

• Reviewing your historical spending to determine likely spending habits during retirement to know how much you need to support your lifestyle.
• How to structure your savings to minimise or even eliminate tax.
• Review your risk tolerance and understanding of the risk-return relationship.
• Assist eligible retirees to access Centrelink benefits to supplement income and extend retirement asset longevity.
• Ongoing review service to ensure you remain on track and are coping outside of employment.

The COVID-19 global pandemic is the current driver of volatility and low interest rates. The need to maintain a long-term investment strategy and avoid instinctively making emotional decisions is imperative to ensure that your retirement savings continue working for you.

Understanding your needs and objectives allows us to provide tailored and relevant strategies to support effective decision-making and a long-term plan that guides you through a stress-free retirement.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

[i] https://nationalseniors.com.au/uploads/0120203573PAR-RetirementIncomeWorry-ChallengerRpt-FNREV.pdf