The school fees stopped a couple of years ago. You worked out roughly what that freed up each month, and you had plans for it. Now you look at the offset account and you could not honestly tell me where it went.
That conversation happens in this office more than any other.
There is a rule in super that would have absorbed a lot of that money, and most people over fifty have never heard of it.
The cap is not a use it or lose it number
The concessional contributions cap for this financial year is $32,500. That covers your employer’s compulsory contributions, any salary sacrifice, and any personal contribution you claim a deduction for.
Almost everyone assumes that if you do not use the cap in a given year, it disappears.
For a lot of people, it does not.
If your total super balance was under $500,000 on 30 June last year, you can carry forward the unused portion of your cap from the previous five financial years and use it now.
What that looks like in practice
Take someone earning $95,000 with nothing going into super beyond the compulsory employer contributions. Those contributions have been using maybe a third of the available cap each year. The rest has been sitting there unused.
Over five years, that can add up to a figure in the tens of thousands.
They can make a personal contribution now, claim it as a tax deduction, and reduce this year’s taxable income accordingly. The contribution is taxed at 15% going into super instead of at their marginal rate on the way out of their pay.
The gap between those two numbers is the whole point.
Why nobody tells you
Your super fund will not ring you about this. It is not their job and it does not help them.
The ATO knows your carry forward balance and shows it in myGov, but you have to go looking for it, and it sits behind enough menus that most people never find it.
Your accountant may raise it at tax time, though by then the financial year has closed and the opportunity for that year has gone with it.
The catches, because there always are some
The $500,000 test is on your total super balance, not your one fund. If you have three accounts, it is the combined figure.
The money goes into super, so it is locked away until you can legally access it. If you are fifty two and might need it at fifty five, this is the wrong strategy.
Claiming the deduction requires a notice of intent lodged with your fund before you lodge your return, and the fund has to acknowledge it. Miss that step and you get no deduction.
And the benefit depends entirely on your marginal rate. Somebody on $50,000 gets far less out of this than somebody on $150,000.
What we actually do with this
Every client who comes through the door gets their contribution history and their total super balance checked as part of the modelling. Not as a one off, every year.
We are looking for the gap between what someone is allowed to contribute and what they actually have. In a lot of cases that gap is the single largest lever available to them, and it is one they can pull without changing their lifestyle at all.
That is not clever. It is just arithmetic that somebody has to sit down and do.
If you are lodging your own return this month, the deadline is 31 October. Worth a look at your myGov before then either way.
And if you have been wondering where that school fee money went, that is exactly the sort of thing a fifteen minute conversation is for.
