Do you understand the super bring-forward rule?
Posted by Northadvisory on February 14, 2022
Have you heard of the super bring-forward rule? There was a lot of discussion about it last year because from 1 July 2021 more Australians became eligible to access its benefits.
The rule applies to non-concessional contributions and is a great way for you to be able to increase your super balance before you retire. If you sell an asset of considerable value or receive a significant financial windfall, it could give you the opportunity to deposit that money into your super without the constraints of the usual annual contribution caps.
Today, we take a closer look at the rule and how you might be able to utilise it in your superannuation strategy.
What are non-concessional contributions?
The ATO outlines non-concessional contributions as:
- from your after-tax income
- not taxed in your super fund.
You make these contributions voluntarily and you don’t claim a tax deduction. From 1 July 2021 the annual non-concessional contribution cap increased to $110,000. Normally, if you contribute more than this amount in a single year you may have to pay extra tax.
What is the bring-forward rule?
The super bring-forward rule allows you to make up to three years’ worth of non-concessional contributions in one financial year. There are certain eligibility criteria that you need to meet, but it does mean you might be able to boost your super balance by up to $330,000 without paying any additional tax.
There are some specific guidelines that you need to follow, but it can be a helpful strategy if you find yourself with a lump sum of money that you want to utilise for your retirement.
How do bring-forward arrangements work?
The amount you already have in super will determine whether you can use the bring-forward arrangements. If your balance is nearing $1.7million there could be restrictions on how much you can contribute.
The ATO says:
“From 1 July 2021
The amount of the non-concessional contributions cap you can bring forward is either:
- three times the annual non-concessional contributions cap over three years (that is, $330,000) if your total super balance on 30 June of the previous financial year is less than $1.48 million
- two times the annual cap over two 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.”
If you make a non-concessional contribution that is over the $110,000 cap, the bring-forward rule will automatically apply – as long as you are eligible.
For example, if you make a $150,000 non-concessional contribution during this current financial year (2021-22), this is $40,000 over the normal annual cap and initiates the bring-forward rule. This means you can make further non-concessional contributions up to $180,000 across the next two financial years – 2022-23 and 2023-24.
Are you eligible?
There are two separate factors that impact your eligibility. As noted above your super balance determines how much you can contribute, but your age also influences how you can use the bring-forward rule.
When it comes to eligibility, the ATO says:
“If you are under 67 years of age at any time in a financial year, you may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.
If you are 67 years old or older on 1 July, you cannot access the bring-forward arrangement in that financial year. You need to meet conditions for certain types of contributions to be accepted by your super fund, including satisfying the work test or work test exemption.”
Speak to our friendly team
We understand that managing your superannuation can be time-consuming and at times complex. Here at North Advisory, our team can help you navigate some of the more complicated strategies and support you as you build your wealth in preparation for retirement.
If you’d like to find out more about how we can help you grow your super, please contact us today.