Q: If you turn 65 and retire after 1 July 2012, can you still make the $450,000 bring-forward non-concessional contribution as long as you make the contribution before 30 June 2013? Or do you have to satisfy the work test to do so?
Answer: For the benefit of other readers, I’ll first explain the contribution rule that you refer to in your question. The annual non-concessional (after-tax) contributions cap is $150,000 a year (for the 2012/2013 year), although Australians under the age of 65 have the opportunity to bring forward 2 years of non-concessional contributions.
The bring-forward rule means that it is possible to make up to $450,000 (for the 2012/2013 year) in non-concessional contributions in a single financial year, or, say, $300,000 in the first year and the balance of $150,000 over the following 2 years. Once you contribute more than $150,000 in a financial year, you automatically trigger the bring-forward rules for the following 2 years, assuming you’re under the age of 65.
If you’re aged 65 or over, however, the bring-forward rule is not available – except in one instance (more on this exception later in this answer). The maximum an individual aged 65 or over can contribute is $150,000 a year (for the 2012/2013 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.
So, your particular question relates to the situation where an individual turns 65 during a financial year. Are they still eligible to take advantage of the bring-forward rule?
The bring-forward rule, as set out in the SIS Regulations (Subregulation 7.04 (3)), says: provided an individual is under the age of 65 on 1 July of a financial year, then they can take advantage of the bring-forward rule during that financial year. You can confirm this with the ATO, or your accountant, or your adviser.
Now, the remaining question is: Even though a person is under the age of 65 on 1 July, what if they make the contribution after the age of 65 during the financial year? Does that then mean they must satisfy the work test, even though they are eligible for the bring-forward rule?
The short answer is ‘yes’, an individual planning to make a super contribution after reaching the age of 65 must satisfy a work test, but it is worth explaining the different rules that interplay with the work test in this instance.
If an individual is aged 63 or 64 and triggers the bring-forward rule, then they can make a bring-forward representing future years when they’re 63 or 64, but that does not mean they can make the contributions (related to the bring forward) after they have turned 65.
After the age of 65, the maximum non-concessional contribution each year is $150,000 (for the 2012/2013 year) – the bring forward is no longer available, except in one unusual instance: If they were aged 64 at the start of the financial year, and then turn 65 during the year, and then trigger the bring-forward rule (that is, under the age of 65 on 1 July, but make the contribution after turning 65 in that financial year), then my understanding is that they must meet the work test before making the super contributions.
I believe this is an unintended consequence of the legislation because the bring-forward rules were designed so that a work test wasn’t necessary but this one seems to have fallen through the legislative gap. In any case, I suggest you confirm this view with the ATO.