Just like concessional contributions, there is a limit on how much after-tax super contributions you can make each year. This is the non-concessional contribution cap. If you are under 65, you may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year. If eligible, when you make contributions greater than the annual cap, you automatically gain access to a future two years cap. This is known as the ‘bring forward’ arrangement.
From 1 July 2017, the non-concessional cap has been reduced to $100,000 per annum with a maximum of $300,000 using the bring forward arrangements. Last year the cap was $180,000 per annum. Since the cap has reduced, it’s important to understand this transition period. If the bring forward rule was triggered in the last 2 years, you need to assess if there is any “gap” left to contribute any further this year.
To understand what the maximum contribution allowed over the 3 years, we need to understand when the bring forward rule was triggered. If the contribution in 2015-16 was more than $180,000, then that is the starting year for the 3-year period. If the full 3-year cap was not used prior to 1 July 2017, then the total non-concessional contribution which can be made over the 3 years (2105-16, 2016-17 and 2017-18) is $460,000. If the contribution in 2016-17 was more than $180,000, then that is the starting year for the 3-year period. If the full 3-year cap was not used prior to 1 July 2017, then the total non-concessional contribution which can be made over the 3 years (2016-17, 2017-18 and 2018-19) is $380,000.
If this was not confusing enough, if you have more than $1.6M in your total super balance on 30th June of the year prior to which a contribution is made, you will not be able to make any non-concessional contributions to super. The difference between your 30th June balance and $1,600,000 is known as your “Gap”. This gap has nothing to do with your current balance but what your balance was on 30th June of the previous financial year. Depending on how big the gap is, you will be either able to contribute at all, just contribute to non-concessional contribution cap for the year or use the bring forward rule. If the gap is more than $200,000, you can contribute up to $300,000. If the gap is between $100,000 and $200,000, you can only contribute up to $200,000. If the gap is between $1 and $100,000, the maximum you can contribute is $100,000.
Let’s look at a few examples to make it easier to grasp all the “rules”.
Tom had contributed $185,000 as a non-concessional contribution back in 2015-16. He made another contribution of $50,000 in 2016-17. Since he had gone over the $180,000 limit in 2015-16, the maximum he can contribute into super in 2017-18 is $225,000. This is calculated based on $180,000 (2015-16 cap) + $180,000 (2016-17 cap) + $100,000 (2017-18 cap) less $185,000 less $50,000. Tom’s super balance was $800,000 on the 30th of June. Since his gap is more than $200,000, he can make the full $225,000 contribution this year.
However, let’s look at Mary’s case. She had also made a non-concessional contribution in 2015-16 but limited it to $180,000. She did not make any contributions in 2016-17. Mary’s super balance on 30th June 2017 was $1,510,000. Even though she has not used up her bring forward rule, since her gap is less than $100,000, the maximum she can contribute in 2017-18 is $100,000.
Susan on the other hand only has $900,000 in her super. She turned 65 in September 2017. She has not made any contributions in the last few years. Even though her gap is more than $200,000, and she has not triggered her bring forward rule, she cannot contribute more than $100,000 as she is over 65.
However, let’s look at how receiving advice can make a bit of difference.
Alex turned 64 in September 2017 and is no longer working. She is considering selling her investment property. After paying down the loan and tax, she will have approximately $450,000 left. Her super balance is $1,250,000 and she has no problem contributing due to the balance. If she was to contribute $300,000 this year (the maximum using the bring forward rule), she will not be able to make any contributions after that. This is because she would not be able to contribute for 2 more financial years and would have already turned 65 as well. He adviser instead suggests that she make a $100,000 contribution this financial year. This would take her balance to $1,350,000 still leaving her with a gap to contribute further in 2018-19. Since she would still be under 65 in July 2018, she can make another contribution of $300,000 into super.
James is 60 and has $1,615,000 in his super at present and is still working. His balance as at 30th June 2017 was also above $1.6M, hence he was unable to make a non-concessional contribution to super for 2017-18. Since he is $15,000 over the $1.6M mark, he won’t be able to make any non-concessional contributions for the next financial year (2018-19) either. Based on the advice he receives, he start a Transition to Retirement Pension with $400,000 of his super balance. He can withdraw between 4% and 10% of his pension balance. He takes a pension payment of $16,000 in June. On 30th June, his total super balance is now $1,599,000. The gap between his super balance and $1.6M is now between $1 and $100,000. After 1 July 2018, he can now contribute $100,000 to his super comprising of the $16,00 he withdrew plus an additional $94,000.
Contribution rules have become more complex. Before you contribute, you need to keep your contribution history, your 30th June balance and your age in mind. It is easy to miss important facts. Before you proceed, it is important to work the numbers out on how much you can contribute otherwise you may end up paying excess tax. Speak to your adviser to ensure you are maximising your savings and minimising your tax.
Compliance and Technical Manager
Prime Financial Group