Maximising super in 2023: bring forward rule explained
Authored by: Darrel Causbrook
Authored by: Darrel Causbrook
Using the bring forward rule (also referred to as the bring forward arrangement) allows you to boost your super contributions, specifically your bring forward non-concessional contributions, in a more compressed timeframe. There are specific guidelines related to age, previous non-concessional contributions, and the amount already in your super balance, often referred to as the transfer balance cap. These criteria determine your eligibility to leverage the bring forward rule.
Grasping these rules is crucial to prevent over-contributing, known as excess contributions, which could result in additional tax.
Understanding non-concessional contributions caps
The non-concessional contributions cap is how much money you can put into your super from your after-tax income without paying extra tax. Starting 1 July 2021, you can put up to $110,000 each year. This amount changes sometimes based on average pay (AWOTE). If you put in more than the cap, you might have to pay extra tax.
Here's a list of the non-concessional cap amounts since the 201-19 financial year:
If you make contributions above the annual non-concessional contributions cap you may be eligible to automatically access future year caps. This is known as the bring-forward arrangement. It allows you to make extra non-concessional contributions without having to pay extra tax, if you meet certain eligibility conditions. If your total super balance is equal to or more than the general transfer balance cap ($1.7 million from 2021–22, $1.9 million from 2023–24) at the end of the previous financial year, your non-concessional contributions cap is nil ($0) for the current financial year.
Understanding the differences: carry forward rule vs. bring forward rule
Both the carry forward rule and the bring forward rule pertain to superannuation contributions, but they cater to different kinds of contributions and operate distinctively.
The carry forward rule is linked to concessional (or before-tax) contributions. If your total super balance is under $500,000, this rule lets you carry over the unused concessional contributions cap on a five-year rolling basis. Essentially, if you don't max out your concessional contributions cap in a specific year, you have the option to roll over the unused portion and apply it in an upcoming year.
Conversely, the bring forward rule deals with non-concessional (or after-tax) contributions. This rule allows individuals below 75 years of age to make a large contribution in one year by advancing their cap from the succeeding two years. This translates to the ability to contribute threefold the yearly non-concessional contributions cap within a single year.
To sum it up, the carry forward rule allows you to roll over unused concessional contribution limits to future years, while the bring forward rule permits you to pre-use your upcoming non-concessional contribution caps.
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Case study: Jane's pre-retirement boost
Jane, aged 60, has recently sold an investment property and has $300,000 in after-tax proceeds. She's looking to retire in the next five years and wants to boost her superannuation savings. Her total super balance is $1.2 million, and she hasn’t made any non-concessional contributions this financial year.
Why use the bring forward rule?
Tax efficiency: Earnings within the super fund are taxed at a maximum rate of 15%, which is likely lower than Jane's personal tax rate. By moving her money into super, she can potentially reduce the tax paid on investment earnings.
Maximise retirement savings: By using the bring forward rule, Jane can contribute up to $330,000 as a non-concessional contribution, significantly increasing her super balance and taking advantage of the compound interest over the next five years before retirement.
Estate Planning: Superannuation can be an effective tool for estate planning. Money within super can be passed on to dependents in a tax-effective manner in the event of death.
Application of the Bring Forward Rule
Jane decides to use the bring forward rule to contribute the entire $300,000 to her super in one go. This means she's using up three years' worth of non-concessional contributions cap in one year. She won't be able to make further non-concessional contributions for the next two years, but this isn't an issue for her as she doesn’t anticipate having additional large sums to contribute during that time.
The Benefit for Jane
By doing this, Jane has:
Taken advantage of her lower total super balance to make a significant non-concessional contribution without exceeding the cap;
Increased her superannuation balance by a large amount in one transaction, giving her more assets earning a low tax rate of 15% within the super environment;
Achieved a more secure financial position for her impending retirement without affecting her personal cash flow or attracting higher tax rates.
In summary, the bring forward rule is beneficial for individuals like Jane who are looking to maximise their super contributions in a tax-effective manner, especially as they near retirement and have access to larger sums of money to invest.
Eligibility and considerations for the bring forward rule
To use the bring forward rule, a person needs to be younger than 75 years old on the previous 1st of July. Also, any Non-Concessional Contributions (NCC) should be made within 28 days after the month they turn 75.
Additional contributions during a bring-forward period
During the second year (or third year, if applicable) of the bring-forward period, your Total Super Balance (TSB) needs to be under the general Transfer Balance Cap (TBC) as of the 30 June of the previous financial year for you to make extra Non-Concessional Contributions (NCCs). An interesting point to note is that you can still contribute the remaining amount from their NCC bring-forward, even if this makes your TSB go over the general TBC afterward. That's because the main condition is for the TSB to have been below the general TBC on the last 30 June to add more NCCs within the bring-forward limit.
If the yearly NCC cap goes up because of indexation, it doesn't mean someone can contribute more under a bring-forward period they already started. This is because the bring-forward NCC limit is set by doubling (or tripling) the yearly cap from the year it began.
There could be new chances to contribute in 2023/24 for those who began the 3-year bring-forward in 2021/22 but couldn't use the full amount in 2022/23. This situation could happen if your TSB on 30 June 2022 was at or above the general TBC (which was $1.7m in 2022/23). Since the general TBC will rise to $1.9m in 2023/24, you could contribute more if your TSB on 30 June 2023 was less than $1.9m.
Managing and overseeing the bring-forward rule: who's responsible?
The ATO is in charge of handling contribution data, which includes details about the bring-forward rule. Super fund trustees don't have to decide if a contribution is allowed. However, they do report personal contributions to the ATO. If someone makes a Non-Concessional Contribution (NCC) that goes beyond the set limit based on caps and their Total Super Balance (TSB), this becomes an excess NCC. In such a case, the ATO will notify the client with an excess notice of assessment.
Individuals can view their contribution and bring-forward details by logging into myGov. From there, they can download a report to either print or email to their financial adviser. However, it's essential to be cautious when using this information. It might not show the current TSB because of how long it takes funds to report. The smartest approach would be to keep thorough records and double-check with all of the client's funds to ensure the information is accurate.
How your total super balance determines your bring-forward cap
The amount you're allowed to contribute using the bring-forward rule depends on your TSB from the end of the previous financial year:
If, on 30 June of the last financial year, your TSB was below $1.68 million, you can make contributions amounting to three times the yearly non-concessional cap over three years. This means you can contribute $330,000. For instance, in the 2023–24 financial year, if your TSB was under $1.68 million as of 30 June 2023, you can make $330,000 in contributions over the next three years.
For TSBs ranging from $1.68 million to just under $1.79 million as of 30 June of the prior financial year, you can contribute double the annual cap, or $220,000, over two years.
If your TSB was $1.79 million or higher by 30 June of the previous year, you can't use the bring-forward option. However, you're still allowed to contribute up to the standard $110,000 for the current year.
These limits reflect the non-concessional cap set at $110,000 and the general transfer balance cap of $1.9 million.
Upon activating the bring-forward rule:
Any subsequent adjustments to the non-concessional cap during the bring-forward period won't affect you. The total amount you can contribute during this time is fixed based on the cap from the year the bring-forward started. For instance, even if the cap rises to $120,000 in the second and third years due to indexation, your total cap over the three years remains $330,000, not $350,000.
Your contributions in the subsequent 1 or 2 years cannot exceed your remaining bring-forward amount. For example, if you contributed the maximum in the first year, your cap would be zero for the next two years.
Starting from the 2017–18 financial year, if your TSB equals or surpasses the general transfer balance cap by the end of 30 June of the preceding year, the remaining cap for the second or third year of the bring-forward period drops to zero.
To avoid unintentionally setting off the bring-forward rule, consider all non-concessional contributions made to all your super funds. Additionally, unreleased excess concessional contributions count towards the non-concessional cap.
The tables below summarise the bring-forward caps that apply in the first year, based on your total super balance.
Navigating your bring-forward arrangement
If you're thinking about adding a big amount to your super, it's important to first check your ATO online services account to see if you've started a bring-forward arrangement.
To do this: log in to ATO online services, click on "Super," then go to "Information," and finally select "Bring-forward arrangement."
However, keep in mind the most recent data might not always be available on ATO online services because of how long it takes funds, especially SMSFs, to report. For the latest updates, it's a good idea to reach out to your super fund.
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Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.