SUPER ALERT! On 3 May 2016, the federal government announced an IMMEDIATE cut to the non-concessional contributions cap, including a cessation of the bring-forward rule. Australians are now subject to a lifetime non-concessional cap of $500,000, rather than the annual cap of $180,000 (and the bring-forward rule allowing up to $540,000 over a 3-year period for under-65s). Although this change has immediate effect, from 3 May 2016 (7.30pm), it is still subject to legislation and subject to the Coalition winning the July 2016 Federal Election. Note that the non-concessional contributions caps explained in the article below no longer apply from 3 May 2016 (subject to legislation).
I receive a lot of questions from readers seeking information about how the non-concessional (after-tax) rules work; in particular, how the bring-forward rules works. The bring-forward rule works over a 3-year period so it is very important that you keep track of the size and timing of any non-concessional contributions.
I have also answered many Q &As from readers about the bring-forward rules, and the most popular questions we have published on the SuperGuide website. You can find a list of some of these Q&As at the end of this article.
1. What is the bring-forward rule?
The annual non-concessional (after-tax) contributions cap is $180,000 (for the 2015/2016 year), although Australians under the age of 65 have the opportunity to bring forward two years of non-concessional contributions.
If you’re under the age of 65, once you contribute more than $180,000 in the 2015/2016 financial year, you automatically trigger the bring-forward rule for the following two years.
The bring-forward rule means that it is possible to make up to $540,000 (for the 2015/2016 year) in non-concessional contributions in a single financial year, or, say, for example, $300,000 in the first year and the balance of $240,000 over the following two years, or any financial combination that adds up to $540,000 over the 3-year period.
Note: The annual non-concessional cap for the 2014/2015 year was also $180,000. The non-concessional cap for the 2013/2014 year however was $150,000, which means if you triggered the bring-forward rules during the 2013/2014 year, or earlier years, then the total contributions permitted over the 3-year period is $450,000, even though the bring-forward extended into the 2014/2015 and 2015/2016 years. If you contributed more than $150,000 in non-concessional contributions during the 2013/2014 year, and you’re under the age of 65, then you triggered the bring-forward rule. You can then contribute up to $450,000 in non-concessional contributions over this specific 3-year period, even though the potential bring-forward, effective from the 2014/2015 year onwards is $540,000.
2. Does the bring-forward rule protect Australians from exceeding the annual non-concessional contributions cap of $180,000?
If you’re aged 64 (or under) when you contribute more than $180,000 in non-concessional contributions during the 2015/2016 year, you automatically trigger the bring-forward rules for the following two years. You would only end up with excess contributions if you exceed $540,000 in non-concessional contributions in one year, or you exceed $540,000 in non-concessional contributions over the 3-year period.
Based on several recent emails from readers, I strongly suggest you check the date/s when you made non-concessional contributions in previous financial years, if the size of your total non-concessional contributions for a financial year were close to the annual $150,000 cap (for the 2013/2014 year, or earlier years) or was close to the $180,000 cap for the 2014/2015 year, or will be close to the $180,000 cap for the 2015/2016 year. Taking such action is important, even if you don’t believe you have triggered the bring-forward rules in the past. You don’t want to have to go through the hassle of withdrawing your super contributions because your non-concessional super contributions were recorded in the wrong financial year, triggering the bring-forward rules without your knowledge.
Note: If you’re aged 63 or 64 and you’re planning to take advantage of the bring-forward rules then Fact 6, later in the article, is essential reading.
If you’re aged 65 or over however (and you don’t fall within the one-off over-65 exception – see Facts 8 and 9 later in the article), contributing more than $180,000 in non-concessional contributions during the 2015/2016 year means that you exceed the contributions cap. The excess non-concessional contributions will potentially be subject to 49% penalty tax, unless you make the likely decision to withdraw the excess contributions and related earnings.
3. Can my spouse also take advantage of the bring-forward rules?
The annual non-concessional (after-tax) contributions cap applies to each person, which means a couple can make up to $360,000 in non-concessional contributions (combined) for the 2015/2016 year. If the couple are both under the age of 65, then they can make up to $1,080,000 over a three-year period (potentially paid in a single $540,000 contribution in year 1 for each individual) if they take advantage of the bring-forward rules.
For the 2014/2015 year: The $180,000 non-concessional cap, and the $540,000 potential bring-forward rule also applied for the 2014/2015 financial year.
Earlier financial years: For the 2013/2014 year and earlier financial years, a couple could make up to $300,000 in non-concessional contributions in a single year, representing each person’s cap of $150,000 for the year. If the couple were both under the age of 65, then for the 2013/2014 year, they could make up to $900,000 over a three-year period (potentially paid in a single $450,000 contribution for each individual in the 2013/2014 year) if they use the bring-forward rule.
4. Can I play catch-up with my contributions? Can I make $540,000 in non-concessional contributions in Year 3, representing my caps for Years 1, 2 and 3?
You can’t play catch-up with the annual cap, or the bring-forward rules — a ‘bring forward’ can only relate to contributions for future years, not past years. If you fail to utilise your non-concessional cap for one or more years, then the cap for those years is gone forever.
Note: The annual non-concessional cap is available until you reach the age of 74. For the 2013/2014 year, the annual cap was $150,000, and for the 2014/2015 year and 2015/2016 year onwards, the annual non-concessional cap is $180,000. The cap will be indexed periodically in line with average wages in $30,000 increments
5. If I make a $240,000 non-concessional contribution in Year one, can I then make a $300,000 in Year 2, and then trigger another bring-forward in Year 3 and contribute a further $540,000?
No, that’s not how the bring-forward rule works. If you make a $240,000 after-tax contribution during the 2015/2016 year, say on 15 March 2016 (Year 1), that contribution triggers the bring-forward rule for the next two years (Years 2 and 3). You then can only make a further $300,000 in non-concessional contributions during the two-year period that ends on 30 June 2018 (Years 2 and 3). You could only make the additional $540,000 non-concessional contribution in Year 4 (from July 2018 onwards, using our example), assuming you’re under the age of 65.
Note: The annual non-concessional contributions cap is $180,000 for the 2015/2016 year, and was $180,000 for the 2014/2015 year. The annual non-concessional cap was $150,000 for the 2013/2014 year (and earlier years), which means the bring-forward in 2013/2014 and previous years was $450,000 over a 3-year period.
I provide further practical examples of how the bring-forward rule works in the SuperGuide article Your 2015/2016 guide to non-concessional (after-tax) contributions.
6. I’m 63 (turning 64 during the year). Can I make a $540,000 non-concessional contribution representing my cap for this financial year, and the next two years without satisfying a work test?
If you’re under the age of 65, you can bring forward up to two years’ worth of non-concessional contributions, which means you can make up to $540,000 in super contributions during the 2015/2016 year, representing your non-concessional (after-tax) cap over a three-year period. Note that once you trigger the bring-forward rule, then the following 2 financial years are also linked to that contribution in the first year.
If you’re aged 63 or 64, you can take advantage of the ‘bring forward’ rule even though the 3-year period may carry over into a year where you are over 65. What this means is that you can contribute more than $180,000 in year 1, when you are 63 or 64 and trigger the bring-forward for the next 2 years without having to satisfy the over-65 rules (work test) that would normally apply to contributions that cover future years, assuming you don’t make super contributions after you turn 65. What this means is: even though the contribution of $540,000 in year 1 represents some of your cap for year 3 (when you’re age 65), you don’t need to satisfy the work test in Year 1, at the time of making the super contribution.
Note: This specific treatment for those aged 63 or 64 does not mean that you can carry the bring-forward rule beyond the age of 65. What this treatment means is that you can beef up your super contributions before you turn 65, even though you’re bringing forward your cap from a year, or years that relate to when you would have already turned 65.
7. What happens when I turn 65?
The bring-forward rule is not available if you’re aged 65 or over. The maximum an individual aged 65 or over can contribute in non-concessional contributions is $180,000 (for the 2015/2016 year), in a single financial year, and they must also satisfy a work test. If a person is aged 65 years or over and exceeds the $180,000 non-concessional cap for the 2015/2016 year, then the excess contributions and related earnings will be withdrawn from the super fund. If you choose to leave excess non-concessional contributions in your super account, then expect a whopping 49% penalty tax on those excess contributions.
8. What happens if I turn 65 during a financial year?
If an individual is 64 years or younger on 1 July of a financial year, then they can take advantage of the bring-forward rule during that entire financial year. What this means is: an individual turning 65 during the 2015/2016 financial year can make a $540,000 non-concessional contribution in the financial year, assuming they have not previously triggered a bring-forward that also covers this financial year. See also Facts 9 and 10.
9. Okay, but what if I make the contribution after turning 65, even though I am under 65 on 1 July?
If an individual is aged 64 years or younger on 1 July of a financial year, then they can take advantage of the bring-forward rule during that entire financial year. If you were 64 years on 1 July of the financial year, and after turning 65 during that financial year, you decide to make a super contribution, then you must satisfy the work test before contributing. The work test involves working 40 hours over a 30-day period in the financial year in which you make the contribution. I explain the work test in the SuperGuide article For over-65s: Ten super tips when making contributions.
Note: If you were 64 years on 1 July of the financial year, the bring-forward rule is available; and if you make the non-concessional contributions before turning 65 during that financial year, then you do not have to satisfy a work test.
Important: If an individual is 65 years or over on 1 July of a financial year, then the maximum annual non-concessional contribution is $180,000 (for the 2015/2016 year), or was $180,000 for the 2014/2015 year, or was $150,000 (for the 2013/2014 year) – for such an individual – the bring-forward rule is no longer available.
10. Great, so does that mean that I can make a single super contribution up to $540,000 after turning 65, because I was under 65 on 1 July?
The situation we refer to in this section s an exception, but yes, an individual who is 64 years or younger on the 1 July of the financial year, can make non-concessional contributions up to three times the amount of the non-concessional contributions cap in that financial year.
For the 2015/2016 year, the annual non-concessional cap is $180,000, which means an individual who satisfies this exception can make up to $540,000 in non-concessional contributions that financial year. In such a specific circumstance, if you make the non-concessional contributions (including triggering the bring-forward rules during that year) after turning 65 during the financial year, then you must you satisfy the work test.
Note: If you make the non-concessional contributions before turning 65, then you don’t have to satisfy the work test.