Contributions caps and taxation of contributions
Standard 'Bring-forward rule'
Clients under age 65 at any time in a financial year may effectively bring-forward up to two years' worth of non-concessional cap for that income year, allowing them to contribute a greater amount (ie up to $300,000 in 2018-19) without exceeding their non-concessional cap. This is known as the 'bring-forward rule'.
The number of years' that may be brought forward into the current financial year is determined by the client's total superannuation balance at 30 June 2018, as shown in the table below.
|Total superannuation balance at 30 June 2018||Standard non-concessional contribution cap for 2018-19||Allowable number of years bring-forward||Max NCC for 2018-19 including bring forward (clients under age 65)|
|Less than $1.4 million||$100,000||2 x $100,000||$300,000|
|At least $1.4 million but less than $1.5 million||$100,000||1 x $100,000||$200,000|
|At least $1.5 million but less than $1.6 million||$100,000||Nil||$100,000|
|$1.6 million or more||Nil||Nil||Nil|
If maximum contributions are brought forward into the current financial year, the person will not be able to make further non-concessional contributions during the bring forward period.
The 'bring-forward rule' is not retrospective. That is, if a person has not made non-concessional contributions for several years in the past, this cannot be added to their non-concessional contribution limit for the current financial year. The non-concessional contributions caps operate on a 'use it or lose it' basis.
Once non-concessional contributions are made in excess of $100,000 in a financial year, the 'bring-forward rule' is automatically invoked (no election is required).
Examples of how 'bring-forward rule' can be used
The following table shows various ways that a client could make use of the 'bring-forward rule' without breaching their non-concessional cap. The examples below assume the client is under the age of 65 and has a total superannuation balance of less than $1.4 million at 30 June in each financial year.
|Non-concessional cap||Scenario 1||Scenario 2||Scenario 3||Scenario 4|
'Bring-forward rule' and indexation
The non-concessional cap increases from time to time due to the indexation of the concessional cap. This effectively means that a client who triggers the 'bring-forward rule' may miss out on an increased non-concessional cap that others have access to because of indexation during financial year 2 and 3 of the 'bring-forward period'.
'Bring-forward rule' for clients approaching age 65 - need to also consider eligibility to contribute
Clients aged 63 or 64 during 2018-19 may use the 'bring-forward rule' regardless of their intentions for future gainful employment or retirement from the age of 65. For example, a client aged 64 can still trigger the 'bring-forward rule' and make a non-concessional contribution of $300,000 in the current financial year, even though they may not have been able to make contributions in financial years two and three of the 'bring-forward period'.
However, it is important to understand that a client must be eligible to make non-concessional contributions each time a contribution is made.
Where a client triggers the 'bring-forward rule' in the financial year that they reach age 65, the timing of such contributions will therefore be determined by whether the client has met the work test during the financial year. If the work test has not been met, the client can only make contributions (and therefore trigger the 'bring-forward rule') prior to reaching age 65. If the work test has been met, however, the client can trigger the 'bring-forward rule' by making after tax contributions at any time during the financial year in which they reach 65 (including contributions made after their 65th birthday).
Last modified: Tuesday, November 13, 2018