Bring forward rule: 10 facts you should know

I receive a lot of questions from readers seeking information about how the non-concessional (after-tax) super contributions rules work; in particular, how the bring-forward rule works. More recently I have received several emails from readers who have fallen foul of the bring-forward rules and received excess contributions tax statements from the Australian Tax Office.

Note: 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 $150,000 (for the 2013/2014 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 $150,000 in a 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 $450,000 (for the 2013/2014 year) in non-concessional contributions in a single financial year, or, say, for example, $300,000 in the first year and the balance of $150,000 over the following two years, or any financial combination that adds up to $450,000 over the 3-year period.

2. Does the bring-forward rule protect Australians from exceeding the annual non-concessional contributions cap of $150,000?

If you’re aged 64 (or under) when you contribute more than $150,000 in non-concessional contributions in one year, you automatically trigger the bring-forward rules for the following two years. You would only be subject to penalty tax (of 46.5%) if you exceed $450,000 in non-concessional contributions in one year, or you exceed $450,000 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, and you don’t believe you have triggered the bring-forward rules in the past. You don’t want to get an excess contributions tax surprise 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 $150,000 in non-concessional contributions in one year means that you exceed the contributions cap and the excess non-concessional contributions will be subject to penalty tax of 46.5%.

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 $300,000 in non-concessional contributions (combined) for the 2013/2014 year. If the couple are both under the age of 65, then they can make up to $900,000 over a three-year period (potentially paid in a single $450,000 contribution in year 1 for each individual) if they take advantage of the bring forward rules.

4. Can I play catch-up with my contributions? Can I make $450,000 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 of $150,000 is available until you reach the age of 74.

5. If I make a $250,000 non-concessional contribution in Year one, can I then make a $200,000 in Year 2, and then trigger another bring-forward in Year 3 and contribute a further $450,000?

No, that’s not how the bring-forward rule works. If you make a $250,000 after-tax contribution during the 2013/2014 year, say on 15 March 2014 (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 $200,000 in non-concessional contributions during the two-year period that ends on 30 June 2016 (Years 2 and 3). You could only make the additional $450,000 non-concessional contribution in Year 4 (from July 2016 onwards, using our example), assuming you’re under the age of 65.

I provide further practical examples of how the bring-forward rule works in the article Your 2013/2014 guide to non-concessional (after-tax) contributions.

6. I’m 63 (turning 64 during the year). Can I make a $450,000 non-concessional contribution representing my cap for this 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 $450,000 in super contributions in one year, representing your non-concessional (after-tax) cap over a three-year period.

If you’re aged 63 or 64, you can take advantage of the ‘bring forward’ rule without satisfying the over-65 work test rules that would normally apply to contributions that cover future years. What this means is: even though the contribution of $450,000 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 caps 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 is $150,000 (for the 2013/2014 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 $150,000 non-concessional cap, then the excess contributions are subject to a whopping 46.5% penalty tax.

8. What happens if I turn 65 during a financial year?

If an individual is 64 years or less 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 a financial year can make a $450,000 non-concessional contribution in the financial year that they turn 65, assuming they have not previously triggered a bring-forward that 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 64 years or less 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 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 $150,000 (for the 2013/2014 year) for that financial 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 $450,000 after turning 65, because I was under 65 on 1 July?

The situation we refer to is an exception, but yes, an individual who is 64 years or less 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 2013/2014 year, the annual non-concessional cap is $150,000, which means an individual who satisfies this exception can make up to $450,000 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.

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.


IMPORTANT: SuperGuide does not provide financial advice. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Readers need to seek independent advice about their personal circumstances.

Comments

  1. Hi Trish,

    Does the maximium amount of $150,000 include deductible contributions as well.eg. salary sacrifice amounts, or can $25,000 be contributed to your super fund that way as well thus allowing a maximum of $175,000 each year(or $450,000 bring forward plus $25,000) to go into super.

    Thanks
    Mark

  2. Phil Windsor says:

    Hi Trish,

    Can you please confirm if the $450,000 Bring Forward rule can only be used once in a lifetime or every 3 years assuming the person is under 65.

    Thanks.

    Phil

  3. Trish, My financial adviser says that I MUST contribute the total “bring forward ” amount (ie dollars between $150001 & $450000) in the first year of the bring forward trimester.That is to say that any dollars that I contribute after the end of the first year (even if the total is less than $450000 over the bring forward period) will incur a tax penalty from the ATO.
    This seems at odds with what you are saying.
    Any comment?

    Thanks
    Alan

    • Hi Alan
      Thanks for your email. Reading the contents of your email, I don’t think I agree with your financial adviser (unless I have misunderstood what you have written). A bring-forward is triggered when an individual who is under 65 on the 1 July of a financial year makes a super non-concessional super contribution of more than $150,000. If the bring-forward is triggered, and the person remains under 65 in the following 2 financial years, then the individual can only make a total of $450,000 over the 3-year period, including whatever he contributed in the first year. Note that a person who is age 65 on the 1 July of a financial year can only make a maximum of $150,000 in non-concessional super contributions each financial year – if such a person exceeds the annual cap, then they will be subject to excess contributions tax.
      I have included the relevant SIS regulation below, for your reference and for your adviser’s reference.
      Regards
      Trish
      7.04 Acceptance of contributions — regulated superannuation funds

      (1) A regulated superannuation fund may accept contributions only in accordance with the following table and subregulations (2), (3), (4) and (6).

      Item

      If the member …

      the fund may accept …

      1

      is under 65

      contributions that are made in respect of the member

      2

      is not under 65, but is under 70

      contributions that are made in respect of the member that are:

      (a) mandated employer contributions; or

      (b) if the member has been gainfully employed on at least a part?time basis during the financial year in which the contributions are made:

      (i) employer contributions (except mandated employer contributions); or

      (ii) member contributions; or

      (c) payments from an FHSA of a kind mentioned in subparagraph 31 (1) (b) (i) or (ii) of the FHSA Act

      3

      is not under 70, but is under 75

      contributions that are made in respect of the member that are:
      (a) mandated employer contributions; or

      (b) if the member has been gainfully employed on at least a part?time basis during the financial year in which the contributions are made — contributions received on or before the day that is 28 days after the end of the month in which the member turns 75 that are:

      (i) employer contributions (except mandated employer contributions); or

      (ii) member contributions made by the member

      4

      is not under 75

      mandated employer contributions

      (2) In addition to subregulation (1), the regulated superannuation fund must not accept any member contributions if the member’s tax file number has not been quoted (for superannuation purposes) to the trustee of the fund.

      (3) In addition to subregulation (1), the regulated superannuation fund must not accept any fund?capped contributions in a financial year in respect of a member that exceed:

      (a) if the member is 64 or less on 1 July of the financial year — three times the amount of the non?concessional contributions cap; or

      (b) if the member is 65 but less than 75 on 1 July of the financial year — the non?concessional contributions cap.

      (4) If a regulated superannuation fund receives an amount in a manner that is inconsistent with subregulation (1), (2) or (3):

      (a) the fund must return the amount to the entity or person that paid the amount within 30 days of becoming aware that the amount was received in a manner that is inconsistent with subregulation (1), (2) or (3), unless:

      (i) for an amount received in a manner that is inconsistent with subregulation (2) — the member’s tax file number is quoted (for superannuation purposes) within 30 days of this amount being received by the trustee of the fund; or

      (ii) for an amount received in a manner that is inconsistent with subregulation (3) — a valid notice under section 290?170 of the Income Tax Assessment Act 1997 is received by the trustee of the fund within 30 days of this amount being received by the trustee of the fund; and

      (b) the fund is also authorised to take any of the following action to the extent that the rules of the fund allow:

      (i) if the price at which the interest could have been acquired on the day on which the amount is returned is less than the price on the day on which the interest was acquired, the amount that would otherwise be returned to the entity or person that paid the amount may be reduced by the amount of the difference between the prices;

      (ii) if the price at which the interest could have been acquired on the day of return of the amount is greater than the price on the day on which the interest was acquired, the amount that would otherwise be returned to the entity or person that paid the amount may be increased by the amount of the difference between the prices;

      (iii) if the price at which the interest could be acquired cannot be determined in accordance with the contract or legal relationship on the day on which the amount is returned, the price is to be determined:

      (A) on the basis of the most recent day on which a price was calculated in accordance with the contract or legal relationship; or

      (B) if there is no day of that kind — as soon as practicable after the decision is made to return the amount;

      (iv) in addition to subparagraph (i), the amount that would, but for this subparagraph, be returned to the entity or person that paid the amount may be reduced to account for reasonable administration costs and transaction costs, incurred by the fund, that:

      (A) are reasonably related to the acquisition of the interest and the return of the amount; and

      (B) do not exceed the true cost of an arms’ length transaction;

      other than costs related to commissions or similar benefits;

      (v) if:

      (A) the interest is a risk insurance interest, or the part of an interest that is a risk insurance interest; and

      (B) the interest has been issued for a specific period, or the premium for the interest has been paid in relation to cover for a specific period; and

      (C) a proportion of the specific period has already passed when the decision is made to return the amount to the entity or person that paid the amount;

      the amount that would otherwise be returned to the entity or person that paid the amount may be reduced by the sum of:

      (D) that part of any amount received in a manner inconsistent with subregulation (1), (2) or (3) as has been paid by the fund to any person in connection with the risk insurance product and which is not recoverable by the fund from that person; and

      (E) the proportion equal to the proportion of the period that has passed of the difference between the amount that would otherwise be returned and the amount referred to in (a).

      (5) If a regulated superannuation fund acts under subregulation (4), the fund is taken not to have contravened the Act or these Regulations in relation to the acceptance of the amount or in relation to the return of the amount to the entity or person that paid the amount of the fund.

      (6) A regulated superannuation fund may accept contributions in respect of a member if the trustee is reasonably satisfied that the contribution is in respect of a period during which, under
      an item in the table in subregulation (1), the fund may accept the contribution in respect of that member, even though the contribution is actually made after that period.

      • Nikki Hill says:

        Trish,

        What if a member turns age 65 during a financial year and wants to contribute $300,000 (after they turn 65 and they have met the work test) and a further $150,000 the next year. Is this allowed?

        many thanks for your help.

        regards

        Nikki

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