Doubling-up the $25,000 Concessional Contributions

Good Morning All,

Just as a reminder for tax planning in 2019-20 that we can use the 'double-up' concessional contribution strategy for clients with a SMSF.

As you are aware a client can make a concessional contribution up to $25,000 in a financial year. However, there are circumstances where a double contribution would be very beneficial to the client.

So, anyone who is eligible to make a concessional contribution (either under age 65 or 65-74 meeting the work test) can make a 'second' $25,000 contribution at the end of the financial year. Super legislation requires member contributions to be applied to a member’s account within 28 days after the end of the month in which the contribution is made, so as long as that 'second' $25,000 arrives at the fund in late June it can be held in reserve and then allocated to the member account 28 days later (ie. in the next financial year).

However the contribution is recorded on the date that the contribution is made – this allows the member to claim both contributions in the one financial year, and then have that second contribution allocated before July 28.

Both contributions can be claimed as tax deductions in the year in which they are made. As far as the second contribution that is carried over to the next financial year, it is counted against the concessional cap in that year.

ATO Documentation

Appropriate Australian Taxation Office forms need to be completed to acknowledge the carryover of the contribution. The relevant form in this instance is a Request to adjust concessional contributions (NAT 74851-07.2015).

That an SMSF can claim both contributions in the year they are made is confirmed in an ATO interpretive decision (ATO ID 2012/16) and a subsequent tax determination (TD 2013/22).

A Live Example

Married couple are both members of a SMSF. They sell a property outside their SMSF that they have held for more than 12 months and make a taxable capital gain of $100,000. They owned the property jointly so each incurs a $50,000 taxable capital gain.

Assuming they have personal exertion income of $100,000 each and we add 50% of the taxable capital gain to that income we have an annual income of $125,000.

The tax payable is $36,277

If they use the 'bring forward' concessional tax rules and contribute $50,000 to super then the tax is reduced to $17,452 a tax saving of $18,825.