New rules allowing individuals to initiate a “bring forward” of future years’ non-concessional contribution caps up until the year they turn 67 (rather than 65) have finally passed. They will apply from 1 July 2020. What quirks should we watch?Join our newsletter
First the change in a little more detail.
At any given time, non-concessional contribution caps depend on two factors:
- The size of an individual’s total super balance, and
- Whether or not they are allowed to initiate a “bring forward” and use future years’ contribution caps in a current year.
Assuming the total super balance isn’t a problem (more on this below), whether or not someone is allowed to initiate a bring forward depends on their age.
In 2019/20 and earlier years, the magic age was 65. Specifically, the rules provided that a bring forward could commence any time up until the end of the year in which the member turned 65. (Note that it’s the end of the year, not their birthday that’s important for this measure – but more on that later.)
Once upon a time, that age had some logic – 65 was also the age at which someone making these non-concessional contributions had to meet a work test.
But from 1 July 2020, work tests were pushed out to age 67 and it therefore made sense to align the bring forward age. It’s taken some time but we’re finally there. The rules are exactly the same as they’ve always been except 65 has been replaced by 67 - the final time at which a bring forward can now be initiated is the end of the year in which the individual turns 67.
And the quirks?
This change only applies for 2020/21 and beyond. So someone who turned 66 in May 2020 could potentially be:
- Eligible to initiate a bring forward in 2018/19 (the year they turned 65),
- Ineligible in 2019/20 (the new rules hadn’t come in and they turned 66 this year), and
- Eligible again in 2020/21 (the new rules apply and this is the year in which the member turned 67).
Also, don’t get confused by the May 2021 Federal Budget announcement to extend the bring forward age up to the year in which someone turns 75. Not only has this not been legislated, it won’t take effect until 1 July 2022 at the very earliest.
The other quirks are similar to those that applied when the magic age was 65 but these are misunderstood surprisingly often.
Firstly – note carefully that it’s not important to initiate the bring forward before the member’s 67th birthday, it’s just important to do it before the end of that year.
So someone who turns 67 in December 2021 could initiate their bring forward any time up until 30 June 2022. The trap is that if they do so after their birthday, they will also need to meet a work test. In contrast, even if they meet a work test the following year, they won’t be able to initiate a bring forward in that year – it’s too late (they turn 68 that year).
Secondly, there’s a difference between “initiating” a bring forward and “finishing one”. Fortunately, the distinction is usually irrelevant because when people want to put a large amount into super they generally do it all on one go. Someone eligible to contribute three years’ non-concessional caps in 2021/22, for example, will often contribute $330,000 in a single amount or at least in a single year. But what about those who choose to just contribute part of this amount in 2021/22 and put the rest in during 2022/23 or 2023/24. This leads to some strange scenarios.
Consider Liz, who is turning 67 in March 2022, is still working full time and intends to do so until around Christmas 2022. It’s July 2021 and she’s planning ahead. She’s keen to get as much into super as she can between now and December 2022 (which spans two financial years – 2021/22 and 2022/23).
If Liz just contributes $110,000 in non-concessional contributions each year she will only get to $220,000 in total. However, if she can initiate a bring forward in 2021/22 (the last year it’s possible for her), she can contribute $330,000. The snag for Liz is that she only has $180,000 spare at the moment – she needs to sell her investment property to fund the remaining $150,000 and that might not happen until 2022/23. Will that be too late?
As long as Liz’s total super balance is less than $1.48m at 30 June 2021 and she contributes just $0.01 over the annual non-concessional cap of $110,000 at any point in 2021/22, she is considered to have initiated her bring forward.
She could contribute her initial $180,000 at any time during 2021/22.
Then, in 2022/23 when she sells her investment property, she can add the remaining $150,000. Interestingly, she’s allowed to put this $150,000 into super in 2022/23:
- Even though it’s more than $110,000 and she’s too old to initiate a bring forward in 2022/23. This is because she’s already initiated it back in 2021/22 – she can finish it off in a later year;
- Without needing her total super balance at 30 June 2022 to be below$1.48m (the threshold for a 3 year bring forward) or even $1.59m (the threshold for a 2 year bring forward). She simply needs it to be less than $1.7m; and
- Even after she stops working in December 2022. While a work test will be required for any contributions she makes throughout 2022/23, it can be met at any time before the contribution is made. She doesn’t need to be working at the time she makes her contribution.
Bring forwards can be complicated and the latest rule changes add some extra considerations. We'll be covering this topic at the 2021 Super Intensive Day this October. If you're an accountant or adviser be sure to register now.