The super cap myth busted

There are two personal finance strategies Aussies most commonly use to build wealth - paying off their mortgage early by making extra repayments and, as they get close to retirement, making extra contributions to top up their superannuation. 

A challenge with the second strategy is that there are limits to how much you can add to your super each year. However, there is a hack that may let you make one or more contributions well above the annual limit and still claim a tax deduction. Let's take a look at how this works.

Caps on super contributions

The cap amount is different for concessional and non-concessional contributions. The annual limit for concessional contributions is $30,000 for the 2024-2025 financial year, up from $27,500. Contributions that count toward your concessional contributions limit include your employer super guarantee contributions (currently 11.5% of income) and salary sacrifice contributions. If you make a personal contribution to your super and claim a tax deduction, these also count as concessional contributions. 

There is also a non-concessional contributions cap of $120,000 for the current financial year, up from $110,000. This cap limits the value of personal contributions where no tax deduction is claimed. 

Concessional contributions are usually more attractive, as they have the dual benefit of increasing your superannuation balance while also reducing the amount of income tax paid - and this is why it is important to be aware that there is a way of contributing beyond the $30,000 limit in a year. 

The carry-forward rule

If you have a total super balance of less than $500,000 at 30 June of the previous financial year, you may be able to 'make-up' any unused concessional contributions from the previous five financial years and add them to the $30,000 limit. This is commonly referred to as 'carrying forward' concessional contributions. 

Let's consider a hypothetical case study to see how this might work. Alison had $450,000 in superannuation at the end of June 2024. Over the past five years, her concessional super contributions have amounted to $20,000 a year.

The table below sets out the concessional contributions cap for each of the previous financial years, and therefore the 'carry forward' amount still available to Alison. This comes to $32,500 of carry-forward contributions on top of the $30,000 limit for the 2025 financial year. That means Alison can make $62,500 worth of concessional contributions to her super in the 2025 financial year. 

Alison's super contributions

A key restriction of the carry-forward provision is that your superannuation fund balance must be less than $500,000 at the end of the previous financial year. The reality for Alison is that with a 2024 end-of-financial-year balance of $450,000, and a year's worth of contributions and superannuation earnings, she may just be above the $500,000 the following financial year. So this financial year may be her last to take advantage of the opportunity to make catch-up contributions. 

To look at a different situation, let's consider Bruce, who has made the same pattern of contributions over the past five financial years, also leaving him with potential catch-up contributions of $32,500. However, Bruce's superannuation balance is only $200,000 at the end of the 2024 financial year, so he is some way away from being limited by the $500,000 total superannuation balance. 

If Bruce chooses to make extra contributions beyond the annual concessional cap, these are applied to the earliest years first. For example, if in the 2025 financial year, Bruce contributes $35,000, the $5,000 contribution over the 2025 cap will be applied to the carry-forward amount from the 2020 financial year. For the 2026 financial year, he will still have $27,500 of carry-forward contributions. This allows him to make carry-forward contributions over a number of years as he builds his superannuation balance toward retirement, as long as his end-of-financial-year balance stays under $500,000. 

Where to find the key information

If you think this strategy might work for you, it's worth taking a look at your myGov account to get all the important information you need. Go to your linked ATO account, click on 'Super' and then in the 'Information' section, you'll find a 'carry-forward concessional contributions' tab (see image below).

This section has a clear statement of the unused concessional contributions available to carry forward and the relevant superannuation balance as at 30 June of the previous financial year.

The potential tax savings

Another benefit of this strategy is that making a tax-deductible contribution to your super will reduce your taxable income, potentially resulting in tax savings. 

Let's look at what this could mean for our hypothetical case studies Alison and Bruce who can each make contributions of up to $62,500 in the 2025 financial year. They have both been making tax-deductible contributions of $20,000 and have funds available to add a further $42,500 to their super. 

If Alison earns $180,000 a year, she will pay $47,938 in income tax (excluding the Medicare levy). By making an extra $42,500 tax-deductible contribution to super her income tax is reduced by $15,725. Her super fund will have to pay $6,375 in contributions tax, still leaving her with a tax saving of $9,350. 

If Bruce earns $90,000 a year, he will pay $17,788 in income tax (excluding the Medicare levy). By making a $42,500 tax-deductible contribution to super his income tax is reduced by $12,750. His super fund will have to pay $6,375 in contributions tax, still leaving him with a tax saving of $6,375. 

Key takeaways 

It's worth keeping in mind that generally, you can't access your super until you reach preservation age, which is 60 for most people. People in their twenties and thirties getting excited about the possibility of building their superannuation balance should remember that there are many years of financial goals and uncertainty until they can access their money. 

However, for those closer to retirement, it can be an excellent opportunity to save tax and have extra money invested in the tax-advantaged superannuation environment. Just make sure you understand - and stick to - the rules. Also, think about the best way to make the extra tax-deductible contributions, possibly over a few years, to reduce your tax bill.