I have triggered the bring forward rule which allows me to invest 3 years non concessional contributions in 2007/8. ie 3 by $150000 = $450,000. However I have only contributed $400,000 as at today’s date. I turn 65 on 6/1/2009. Could you please advise me as to whether I can contribute the outstanding balance of $50,000 before 6/1/2009 and not exceed the cap rule.
What on earth was Peter Costello thinking when he quipped that after the Simpler Super regime was enacted you would no longer need a financial adviser?!! Let’s name just a few of the “simple” super concepts: cash out and re-contribution strategies; tax on death benefit payments from an untaxed superannuation fund; transitional employer termination payments; and today’s topic – rules for non-concessional contributions. You “simply” may not want to toss your adviser away just yet!
From 1 July 2007, the Government introduced contribution caps to limit the amount of non-concessional (and concessional) superannuation contributions that you can make or have made on your behalf.
Non-concessional contributions are the old “undeducted” personal or spouse contributions and they are made from after tax money.
Previously, there was no limit to the amount of personal contributions you could make to super, but there was a maximum amount you could accumulate in superannuation that was concessionally taxed (remember the old Reasonable Benefits Limits). Since 1 July 2007, contributions are now subject to a standard annual non-concessional contribution cap of $150,000 each financial year (indexed), or $450,000 by using the bring forward provisions, where eligible.
How does it work? You are allowed to personally contribute up to 3 times the non-concessional cap applying in the trigger year and the money (or in-specie contribution) can be contributed at any time over the current and following 2 financial years. So, for the 2007/08 financial year, the bring forward provisions would allow up to $450,000 to be contributed between 1 July 2007 and 30 June 2010.
The bring forward provision is available if you are aged less than 65 at any stage during the relevant financial year. To trigger the bring forward provisions, all you have to do is “simply” contribute more than $150,000 during a financial year. Once more than $150,000 is contributed in a financial year, the bring forward provision is automatically triggered.
Any subsequent indexation of the non-concessional cap will not affect the amount which can be contributed once the bring forward amount is triggered and locked in for that 3 year period.
So in answer to the question – you are spot on. You have already triggered the bring forward provisions by adding $400,000 (I am assuming this has been since 1 July 2007). So now you have $50,000 left that you can add before your 65th birthday and not exceed the cap.
Now if you can’t raise $50,000 to add to super by your 65th birthday, don’t panic. If you have worked 40 hours in 30 consecutive days between 1 July 2008 and when you turn 65, then you have satisfied the work test (for over 65s) and you can still make the additional contribution right up until 30 June 2009. That is, as long as you make the contribution in the same financial year as satisfying the work test for over 65s, then everything is fine.
If you exceed the cap, then penalty tax rates of 46.5% apply to the excess – “simply” horrible.
If you have more than $450,000 you need to move into super in short time, and you are under 65 – then with careful planning – that can be done too. Let’s look at an example.
Carla is 64 and will turn 65 on 1 January 2009. She will permanently retire shortly after her 65th birthday. She has $600,000 that she wants to contribute into super. How can Carla contribute the entire $600,000 into superannuation?
By careful use of the non-concessional contributions cap as per option 2, Carla has been able to contribute the entire $600,000 into her superannuation fund before retiring. Simple!!
Note: In addition to this standard cap, in certain circumstances an individual may nominate for the contribution to be counted under the small business CGT cap or the personal injury cap.
Disclaimer: This article is general in nature and is not intended as investment advice. Readers should always seek further advice before making any financial decisions.
Jeremy Gillman-Wells is an Authorised Representatives of AMP Financial Planning Pty Limited | ABN 89 051 208 327 | AFS Licence No 232706.