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 30^th 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 30^th 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.