by Alicia Thomson
Recently the announcement for AWOTE (average weekly ordinary time earnings) for the December 2020 quarter was announced. This has had the roll-on effect of increasing the non-concessional and concessional caps as well as the transfer balance cap.
The concessional cap, originally set at $25,000 p.a. will increase to $27,500 p.a. from the 1st of July 2021. The non-concessional cap, previously at $100,000 p.a., will increase to $110,000 p.a, while the transfer balance cap will increase to $1.7 million.
These will be the first increases since the caps were introduced in July 2017.
The increase also affects the bring-forward rule for non-concessional contributions, increasing the maximum amount to $330,000 for those that are eligible. Under the bring-forward rule, a person’s non-concessional cap is based on a multiple of the standard non-concessional cap that applied in the year they triggered the rule. However, anyone who had triggered the bring-forward rule prior to July this year will be limited to a maximum of $300,000 for the remainder of the bring-forward period regardless of when the balance of the contributions is made.
So, for a member with a total super balance less than $1.4 million who triggers the bring-forward rule in 2020, they will have a non-concessional cap in year 1 (2020) of $300,000. In year 2 they can make non-concessional contributions of up to $300,000 less the contributions made in Year 1. For year 3, they can contribute up to $300,000 less the sum of the contributions made in Year 1 and Year 2.
A further complication of the bring-forward rule where contributions are to be made across a number of years is the impact of the total super balance. Consider a member who triggers the bring-forward rule in 2020 by making $200,000 of non-concessional contributions in that year. By June 2020 their total super balance had increased to $1.6 million, so they would not be able to make further non-concessional contributions, even though they still had room within their bring-forward cap. From 1st July 2021 the transfer balance cap will increase to $1.7 million and providing that member’s total super balance at that date is less than $1.7 million, they would be able to make further non-concessional contributions within the 3-year period of the bring-forward rule.
This example is set out in the following:
Year 0 2018-2019 – Total superannuation balance is $1.38mil at 30th June 2019.
Year 1 2019-2020 – Non-concessional contributions of $200,000 were made. The member’s total superannuation balance is $1.6mil at 30th June 2020.
Year 2 2020-2021 – The member is not eligible to make further non-concessional contributions this year due to their total superannuation balance at 30th of June 2020 being equal to the transfer balance cap. At 30 June 2021, the total superannuation balance is $1.6mil.
Year 3 2021-2022 – Transfer balance cap increases to $1.7mil. The member is now considered to be under the transfer balance cap and thus able to make non-concessional contributions up to $100,000.
Please note that we are still waiting on legislation to pass that allows people over the age of 65 and under 67 to utilise the bring-forward rule.
If you need a hand with difficult scenarios please call our team, we can provide practical solutions for SMSFs. Please contact Mark or Alex on 1300 364 597.