Making the most of the bring forward rules for your non-concessional contributions

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If retirement is on your mind but your superannuation balance has other ideas, then using non-concessional contributions can be an effective way of reaching your retirement goal quicker.

Simply put, a non-concessional contribution is paid from after-tax income and as you have already paid tax on the amount, is not subject to tax once deposited into a super fund. Currently, non-concessional contributions are capped at $150,000 in any given financial year.

Those aged 65 but less than 75, who satisfy the work test, can make non-concessional contributions of up to $150,000 each financial year, subject to satisfying the work test. The work test requires members of a superannuation fund to have worked 40 hours in 30 consecutive days at any time during the relevant financial year.

However, individuals under the age of 65 on 1 July of the relevant year, have the opportunity to make a non-concessional contribution of up to $450,000, averaged over three financial years. This allows those in the financial position to do so to bring forward two years of future non-concessional contributions. Individuals aged 63 or 64 can take advantage of the $450,000 non-concessional contributions cap and are not required to meet the work test in relation to years two and three unless further contributions are made in those years.

Using the rules to your advantage
Joanna, aged 63, has $600,000 net proceeds from the sale of an investment property. She intends to use these funds to make a non-concessional contribution into superannuation prior to retiring when she turns 65.

Under option 1, Joanna contributes $450,000 in 2011/12. She exceeds the annual non-concessional cap of $150,000 in the 2011/12 financial year and the ‘bring-forward’ provisions are triggered, which means that the $450,000 contribution is averaged over 2011/12, 2012/13 and 2013/14.

She is unable to contribute the remaining $150,000 in 2014/15 as she is over 65 years of age and does not satisfy the work test. Therefore, she has not achieved her aim of contributing the entire $600,000 into her superannuation.

But Joanna’s financial planner suggests that she consider an alternative strategy.

Click NEXT to read Joanna’s other options

Under option 2, Joanna contributes $150,000 in 2011/12 and does not exceed the annual non-concessional cap, i.e. she does not trigger a bring-forward period. Joanna contributes the remaining $450,000 in 2012/13.

She exceeds the annual non-concessional cap of $150,000 in the 2012/13 financial year and the bring-forward provisions are triggered, which means that the $450,000 contribution is averaged over 2012/13, 2013/14 and 2014/15. She is not required to meet the work test as she is aged 64 at the time of making the $450,000 contribution. Joanna has achieved her aim of contributing the entire $600,000 into superannuation under option 2.

Under option 2, Joanna is also able to earn interest on the remaining $450,000 during the 2011/12 financial year.

Richard Shermon, Reserve Financial Consulting
Business profile

Important information.

This article has been prepared to provide you with general information only. It is not intended to take the place of professional financial and taxation advice and you should not take action on specific issues in reliance on this information. In preparing this information we did not take into account the investment objectives, financial situation or particular needs of any particular person. The case studies in this article are hypothetical and are not meant to illustrate the circumstances of any particular individual. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. You should obtain a copy of the relevant Product Disclosure Statement (PDS) before making a decision to invest in any financial product. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

The Salisbury Group Pty Ltd: ABN 51 089 332 918 AFSL 225 379

Reserve Financial Consulting Pty Ltd: ABN 85 138 151 738: AR no: 340004


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