Contents
- The bring forward rule for non concessional contributions
- What is total super balance?
- Tax planning opportunities associated with the bring forward rule
- Exceeding the non concessional contributions cap
The bring forward rule for non concessional contributions
There are many potential tax incentives available for superannuation fund members that take up the opportunity to maximise superannuation contributions. This includes the low rate of tax imposed on contributions and subsequent earnings within the fund.
There is the further advantage that non concessional super contributions (as distinct from concessional super contributions) made prior to the commencement of an income stream will increase the tax free component of a member’s super interests. The upside being that there is generally no tax imposed on the tax-free component of super benefits paid out before retirement or to non dependants.
To prevent exploitation of the super system as a tax haven, the tax law currently limits annual non concessional contributions to $110,000 per annum for 2023-24 financial year and to $120,000 per annum for 2024-25 financial year.
The bring forward rule provides a way around this restriction by enabling a member to make contributions to their super fund that exceed the annual non concessional contributions limit. The bring forward rule for non concessional contributions is outlined in Division 292 of the ITAA 1997.
Specifically, the bring forward rule allows a member to make up to three years’ worth of non concessional contributions in a single income year. Based on the current annual cap, that equates to $330,000. In this way, you will see that the bring forward rule is essentially enabling the member to tap into future unused cap space.
The bring forward rule is generally most attractive where the person has excess cash e.g. from an inheritance received, or where a significant asset is realised. The advantage for a member in bringing forward non concessional contributions (as opposed to staggering contributions over a number of years) is that returns on the investment of that member’s funds will have a longer period of exposure to lower rates of tax than returns on investments outside of the super environment. In this way, the bringing forward of contributions may be effective in increasing the member’s net wealth.
The bring forward rule is also attractive where that member would not be eligible to make annual non concessional contributions in future financial years (without the bring forward rule) due to failing the eligibility criteria in those future financial years. For example, by reaching the age of 75.
As an addition or alternative to the bring forward rule, it is worth considering if any other contribution concessions are available. Such alternative contributions concessions could include the downsizer super contributions concession and the contributions concession contained within the small business CGT concessions.
A member will trigger the bring forward rule where the following are true in the financial year in which the contribution exceeding the cap is made, the first year:
- The person must be under the age of 75.
- Total non concessional contributions exceed the annual non concessional contributions cap.
- The total super balance of that member on 30 June of the income year just before the first year is less than the general transfer balance cap.
- The member must not have utilised the bring forward rule within the last two financial years.
- The general transfer balance cap in the first year must exceed that person’s total super balance at 30 June of the income year just before the financial year of contribution by at least the amount of the annual non concessional contributions cap.
These criteria are further addressed in the below headings.
The member must be under the age of 75
The last date a super fund can accept a non concessional contribution is 28 days after the end of the month that member turns 75. For example, if a person turns 75 on 1 December 2023, the last day of eligibility is 28 January 2024.
Remember that a contribution only counts in the year the super fund receives the contribution. It is not based on the date the contribution is made by the member.
Note that prior to recent changes to the law, the age restriction was 67 unless a work test was satisfied by the member. This is no longer a requirement.
Total non concessional contributions in the first year exceed the non concessional contributions cap
The bring forward rule will only be relevant where the member contributes an amount into super that exceeds the annual non concessional contributions cap (currently $1,900,000 in the 2023-24 income year). There is no need to notify the super fund that the bring forward rule is being applied. The excess contribution will cause the rule to apply automatically (assuming the member is eligible).
Total non concessional contributions in the first year exceed the non concessional contributions cap
The bring forward rule will only be relevant where the member contributes an amount into super that exceeds the annual non concessional contributions cap (currently $1,900,000 in the 2023-24 income year). There is no need to notify the super fund that the bring forward rule is being applied. The excess contribution will cause the rule to apply automatically (assuming the member is eligible).
Total super balance must be under the general transfer balance cap
The total super balance of a member must be under the general transfer balance cap (currently $1,900,000 in the 2023-24 income year) at 30 June of the income year before the first year.
For example, take Ellie who wants to utilise the bring forward rule to make non concessional contributions under the bring forward rule. She makes a non concessional contribution on 15 July 2023 of $150,000. The non concessional contribution exceeds the annual cap of $110,000 and therefore triggers the bring forward rule. Her total super balance at 30 June 2023 (i.e. the end of the financial year before the first year) is $1,000,000. Here, Ellie’s total super balance ($1,000,000) is less than the general transfer balance cap ($1,900,000) in the income year of contribution. Therefore, she satisfies this requirement of eligibility for the bring forward rule. If instead her total super balance at 30 June 2023 was $2,000,000 she would not be eligible to use the bring forward rule or make any non concessional contributions.
The person must not have utilised the bring forward rule within the last two income years
A member will be prevented from making further non concession contributions until any period of brought forward unused cap space has expired. This prevents a member from doubling up on non concessional contributions.
For example, assume a member brought forward two-years of unused cap space and made a non concessional contribution of $330,000. That member would have to wait two income years before they could make another non concessional contribution, as the non concessional contribution cap space for those two years has been brought forward and fully used, reducing the available cap space in those two years to nil.
The general transfer balance cap in the first year must exceed that person’s total super balance by at least the annual non concessional contributions cap
In essence, based on current caps and thresholds, a person must ensure that their total super balance is no more than $1,790,000 at 30 June of the financial year before the first year in order make a contribution that exceeds the annual cap. That is, $1,900,000 (being the transfer balance cap in the 2023-24 financial year) less $110,000 (being the annual non concessional contributions cap at 30 June 2023).
If we continue on with the above example of Ellie, her total super balance at 30 June 2023 must be less than $1,790,000 in order for her to be eligible to utilise the bring forward rule. If her total super balance at 30 June 2023 was between $1,790,000 and $1,900,000 she would only be permitted to make a non concessional contribution up to the annual cap amount of $110,000.
Further limitations on quantity of non concessional contributions
A member who is eligible to make non concessional contributions and to utilise the bring forward rule may not be at liberty to contribute three times the annual non concessional contributions cap in every instance. The maximum non concessional contribution under the bring forward rule is based on the above mentioned criteria and the member’s total super balance as set out in the below table:
Bring-forward cap first year (applying to 2023-24 and later years)
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Note that a member is permitted to make non concessional contributions up to the bring forward cap at any time within the bring forward period. However, the ability to make a contribution up to the bring forward cap in those future income years (within the bring forward period) is reliant on the total super balance of that member being under the general transfer balance cap at the end of the financial year prior to the year of contribution.
For example, Ciana is eligible to utilise the bring forward rule to contribute up to three times the annual non concessional contributions cap. She decides to make a $150,000 non concessional contribution in the 2023-24 income year and a $180,000 non concessional contribution in 2024-25 income year (the remaining maximum contribution she can make in the bring forward period). She will only be eligible to make the additional $180,000 contribution if her total super balance is under the $1,900,000 general transfer balance cap at 30 June 2024. If her total super balance at 30 June 2024 exceeds the general transfer balance cap, she may prefer to make the entire $330,000 non concessional contribution in the first year (i.e. prior to 30 June 2024).
What is total super balance?
Total super balance is essentially the total value of a member’s super interests. There are complex methods to follow to calculate total super balance.
Tax planning opportunities associated with the bring forward rule
The first major planning opportunity is to be strategic around the timing of engagement of the bring forward rule. It is the financial year in which the bring forward rule is triggered that determines the bring forward cap amount. The bring forward cap amount is based on the annual non concessional contributions cap in the first year and does not change if the annual non concessional contributions cap increases for an income year within the bring forward period.
For example, assume the annual non concessional contributions cap is $110,000 in 2023-24, $120,000 in 2024-25 and $130,000 in 2025-26. If the bring forward rule is triggered in 2023-24 the bring forward cap is $330,000 being three times the annual non concessional contributions cap in 2023-24.
You can see the bring forward cap is not increased to take into account the increase in the annual non concessional contributions cap in the 2024-25 and 2025-26 income years. The bring forward cap is not increased to $360,000 (being $110,000, plus $120,000, plus $130,000). Therefore, a member may consider it strategically preferrable to avoid triggering the bring forward rule until, for example, the 2024-25 income year where the bring forward cap would be $360,000 (3 x $120,000). This would enable the member to make additional non concessional contributions of $30,000.
The second major planning consideration was illustrated above. It involves a situation where a person uses the bring forward rule but makes contributions up to the bring forward cap amount in a future income year. For example, James triggers the bring forward rule but instead of contributing $330,000 (the bring forward cap amount) in the first year, he makes a $165,000 contribution in the first year and a further $165,000 contribution in the next income year.
As mentioned, non concessional contributions will only be permitted in an income year where the person’s total super balance (at 30 June before that income year) is less than the general transfer balance cap, even if the contribution is made within the bring forward period and does not cause the member to exceed the bring forward cap.
Problems can occur if a member has not exhausted the bring forward cap in the first year and it appears likely that their total super balance at 30 June will exceed the general transfer balance cap. To avoid this situation, a member with a total super balance which is approaching the general transfer balance cap could simply contribute the maximum bring forward amount in the first year (before the year in which the transfer balance cap is at risk of being exceeded).
Exceeding the non concessional contributions cap
If a member exceeds the cap, the first and most common solution is to obtain a release for the excess contribution plus 85% of the associated earnings. The associated earnings will be included in the member’s taxable income along with a non refundable tax offset of 15%. The alternative solution is for the excess non concessional contributions to remain in the super fund. In this instance, the excess will be taxed at the rate of 47%.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.