Contributions / SMSF / SMSF Strategy / Trustee education

Look ahead to plan your non-concessional contributions

looking-ahead-non-concessional contributions

The use of the bring-forward rule with non-concessional contributions (NCC) has certainly been a popular strategy amongst self-managed super fund members, utilised extensively since 1 July 2007 with cash contributions, in-specie asset transfers and re-contributions.   Since the inception of these contribution caps, interestingly the non-concessional contribution cap has never indexed from its $150,000 limit, currently calculated as six times the concessional contribution cap.  After years of the Government ‘meddling’ with these caps (including a two-year freeze on indexation), it was pleasing to see for 2014-15 the contribution caps on the rise.

For members looking to utilise the bring-forward rule, the indexation of the caps highlights the importance of timing when deciding to trigger this three-year window.  For a member that triggers the amount in the current 2013-14 financial year or is currently within their bring forward period, it is important to note that a member does not benefit from the indexation of the contribution caps.  To help understand this better, lets look at the following example:

Non-concessional contribution example

Keith made a $400,000 non-concessional contribution into his SMSF during the 2012-13 financial year, triggering the bring forward rule.  This meant that he has triggered his ‘bring forward’ rule with his non-concessional contribution cap and cannot contribute more than $450,000 during the period 1 July 2012 to 30 June 2015 inclusive (without an excess contributions tax penalty).  On 1 July 2014, Keith advises that he wishes to make a further contribution of $140,000, taking him up to the new indexed non-concessional contribution cap ($540,000).  As Keith triggered the bring forward prior to the indexation of the caps, his is restricted during the three-year window to $450,000.  From 1 July 2015, Keith would be eligible for the higher $180,000 NCC cap and trigger a new bring forward rule.

As you can see from the above, the timing of your contributions for the remainder of the financial year can be important for those wishing to maximise the amount of contributions in their fund, or even through strategies such as re-contributions.

As they say… it is all in the timing!

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Comments

comments

9 thoughts on “Look ahead to plan your non-concessional contributions

  1. Thanks for bringing this type of thing to the industry’s attention. Personally I think the operation of this is silly, but them’s the rule.

  2. Interesting little catch for the unwary. On the plus side, the complexity of our “simple” super system is what keeps Advisers in work. Happy days.

    • Hi Andrew & Bruno,

      Thanks for your comments. Another example of a little trap that trustees and professionals could get caught with. Given that excess contributions tax remains for non-concessional contributions, the last thing we want to see is large tax bills on people thinking that they can contribute a further $90k into super.

      Cheers,
      Aaron

  3. Hi Aaron,

    Can you reserve $540K in June 2014 for next financial year or you are only allowed to reserve $450K in June 2014. (assuming all the other factors are satisfied to do the bring forward rule).

    Thanks,

    Anthony

    • Hi Anthony,

      The fact that the amount remains unallocated until the following financial year, I would take the view that a $540k contribution could be made in June and held in reserve to be allocated in the following financial year.

      Cheers,
      Aaron

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