- The non-concessional contributions cap is defined as six times the concessional contributions cap.
- From 1 July 2014, the three year bring forward rule allows eligible clients to contribute $540,000, up from $450,000.
- Superannuation law restricts the amount of contributions that can be made in a single transaction, which means you may have to make multiple contributions.
Although tax and super generally go hand in hand, the interaction between taxation law and superannuation law is not always crystal clear. In this article we will explore the different rules that need to be considered when utilising the three-year bring forward rule.
The rule
The three-year bring forward rule is a taxation rule that allows a client to contribute up to three times the non-concessional contributions cap in a financial year, or over the next two financial years.
The three year bring forward rule is triggered when a client:
- makes a non-concessional contribution that exceeds the annual non-concessional contributions cap, and
- is under age 65 at the beginning of the financial year, and
- the three year bring forward had not already commenced in the previous two financial years.
A client must be under age 65 on 1 July in the financial year in which they first trigger the three year bring forward rule, however they can turn 65 during the financial year and still utilise the three-year bring forward rule for the remainder of the three year period.
Indexation of the non-concessional contributions cap
The non-concessional contributions cap is defined as six times the concessional contributions cap. The concessional contributions cap increased to $30,000 from 1 July 2014, up from $25,000 since 1 July 2009. Accordingly, from 1 July 2014 the non-concessional contributions cap is $180,000, up from $150,000 since 1 July 2009.
Indexation and the three-year bring forward rule
From 1 July 2014, the three year bring forward rule allows eligible clients to contribute $540,000, up from $450,000. Importantly, the amount of the three-year bring forward cap is determined based on when the cap is triggered, not based on when a further or final contribution is made. If a client triggered the three year bring forward prior to 1 July 2014 then their cap will remain at $450,000, it will not increase to the $540,000 that applies for clients who trigger the cap from 1 July 2014.
Transitional concessional contributions cap
Older clients who are subject to the transitional concessional contributions cap of $35,000 do not get six times the transitional concessional contributions cap, they are also restricted to $180,000. From 1 July 2014, the $35,000 transitional concessional contributions cap was extended to clients aged 49 years or over on 30 June 2014.
Eligibility to make superannuation contributions
As determined by superannuation law, super funds can accept any contributions for clients when they are under 65. For clients who have turned 65 but not yet turned 75, member contributions and employer voluntary contributions (including salary sacrifice) can only be made if a client passes the work test. The work test requires a client to have worked at least 40 hours in 30 days in the financial year in which the contribution is made.
The work test must be passed if the client makes a non-concessional contribution after their 65th birthday, even though it may be possible that the work test was met prior to turning 65, but still during the financial year in which the contribution is made.
Fund capped contributions
Superannuation law restricts the amount of contributions that can be made in a single transaction. For clients under age 65 at the beginning of the financial year the fund capped contribution is three times the non-concessional contributions cap ($540,000 from 1 July 2014). For members aged 65 to 75 at the beginning of the financial year the fund capped contribution is the non-concessional contributions cap ($180,000 from 1 July 2014).
Case study
The interaction between the two laws is illustrated in the following case study:
Outcome – This will work as long as Betty’s contributions are below the fund capped amount. If she made a single contribution of $250,000, the superannuation fund must return the contribution. She could then make multiple contributions before 30 June.
Summary
The interaction of superannuation laws and taxation laws need to be considered together, not in isolation, to ensure that outcomes are as intended.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.