What does the ‘Bring-Forward’ rule mean?
Who can use it?
There were multiple changes in superannuation last year, many in relation to non-concessional super contributions. In particular, as we reported, the ages at which different types of contributions can be made are now lower. Requirements around the Work Test have also been relaxed, in this case with the age being increased.
Overall these changes are very positive for older Australians hoping to maximise their retirement income. It means they can transfer more of their savings into lower tax environments.
But these frequent changes can lead to confusion on how the new rules might apply in your own personal circumstances.
Today we explain the new rules on ‘bring forward’ contributions and how they might fit with overall retirement income strategies.
What is the Bring-Forward arrangement?
These arrangements are available to those who wish to make contributions above the annual non-concessional contributions cap, by giving them access to future year caps. The extra non-concessional contributions can mean you are not paying extra tax.
Who is eligible?
Eligibility for the bring-forward arrangement depends upon two things:
- your age
- your total super balance on 30 June of the previous financial year.
How does it work?
For those under 75 years of age (at any time in a financial year) they may be able to make non-concessional contributions of up to three times the annual non-concessional cap in that financial year. ($110,000 by three times, totalling $330,000)
For those who are 75 years or older, your contributions to super may be limited to employer contributions and downsizer contributions.
How the government defines this rule
Here’s how the ATO explains the Bring-Forward arrangement:
From 1 July 2021
The amount of the non-concessional contributions cap you can bring forward is either:
- 3 times the annual non-concessional contributions cap over 3 years (that is, $330,000) if your total super balance on 30 June of the previous financial year is less than $1.48 million
- 2 times the annual cap over 2 years (that is, $220,000) if your total super balance on 30 June of the previous financial year is above $1.48 million and less than $1.59 million
- nil ($0) if your total super balance is $1.59 million or above.
These limits are based on the:
- non-concessional contribution cap of $110,000
- total super balance in relation to the general transfer balance cap of $1.7 million***.
*** It is worth remembering that the general Transfer Balance Cap of $1.7 million is likely to increase to $1.9 million on 1 July this year, due to indexation.
Is this the same as ‘downsizer’ contributions?
Where confusion can enter the picture is when the bring-forward arrangement is used after the sale of the family home. Many retirees and pre-retirees are now considering the efficacy of downsizing since the 1 January legislative change on using any proceeds to top up super. Essentially the age at which the ‘downsizer’ contributions can be used is now 55. ‘Downsizer’ legislation allows you to make a one-off superannuation contribution post-tax, up to $300,000 per individual. Combining ‘Bring-Forward’ and ‘downsizer’ allowances means an individual may be able to contribute up to $630,000 in any one year. But there may also be Centrelink means test implications if you receive or hope to receive an Age Pension.
Tips and Traps
The rules regarding ‘Bring-Forward’ arrangements are complex, but even more so for couples. That’s because it is important to consider whose super account should be used for any extra non-concessional contributions as there are many tax implications, depending upon the age of a partner and whether their super is in accumulation or decumulation mode.
As noted above, there are often also Centrelink implications for asset thresholds when your super nest egg is upsized.
Look before you leap
Making sizeable contributions to super is a major financial decision and so it is important that you do so only if you can satisfy the following five conditions:
- You know the current rules
- You believe you have interpreted them correctly for your own situation
- You are aware of the tax implications
- You know the deadlines by which you must make any transfers
- You genuinely believe you are not missing any aspect of this strategy
In summary, the relaxation in rules related to non-concessional super contributions – when used judiciously – offers significant benefits to those funding life after work over the course of 20 or 30 years.
Still unsure? If either the bring forward or downsizer strategies are appealing, but you need more support in applying the rules, you may wish to consider a one-on-one consultation with one of our experienced advisers who can help you make sense of the new super rules and how they work with other entitlements.