One of the most important strategies for those with assets outside super as you approach retirement age is to get as much of your assets into super as possible because once you have met a condition of release and moved your super from an accumulation account to an account-based pension, you get:
- zero tax on investment earnings (both income and capital gains)
- zero tax on the income you receive (if you are over 60), and
- zero tax on lump sum withdrawals.
Non-concessional contributions (NCCs) are a great way to get more money into super as you get closer to retirement. The annual cap for non-concessional contributions is four times the cap for Concessional contributions (CCs), so it is currently $110,000.
The ‘bring-forward rule’ can help to get even larger sums into your super.
Quick Links
What is the bring-forward rule?
How much can you bring forward
How to use the bring-forward rule
What if the non-concessional contribution cap increases
Who is eligible for the bring-forward rule
Tips for using the bring-forward rule
What is the bring-forward rule?
Under the ‘bring-forward’ rule, people under 75 at any time in the financial year may effectively bring forward from future years, up to an additional two years’ worth of non-concessional caps. This means you can contribute a greater amount (i.e., up to $330,000) without exceeding their NCC cap.
Since you don’t get a tax concession when contributing NCCs, this strategy is more useful for those approaching their last 10 years before they can access their super.
Unlike the carry-forward rule with CCs, any previously unused NCCs are not carried forward, so if you haven’t made NCCs for several years, they cannot be added to your NCC limit for the current financial year.
How much can you bring forward
The amount you can bring forward depends on your Total Super Balance on June 30 of the previous financial year:
- $330,000 if less than $1.68 million
- $220,000 if between $1.68 and $1.79 million
- $110,000 if between $1.79 and $1.9 million (this is the NCC cap, nothing to bring forward).
Strategy tip – getting an extra $110,000 into your super:
It’s easy to miss this, so before moving on, take a look at those figures again.
You could have a super balance of slightly below $1.9m and still contribute $110,000, bringing your super to almost $110,000 more than the $1.9m limit.
Similarly, you could have slightly below $1.79m and contribute $220,000, or slightly below $1.68m and contribute $330,000, both of which also result in a super balance of almost $110,000 more than the $1.9m limit.
This is important because if you have reached preservation age, where you can withdraw some of your super, and if your super is near those limits, you could potentially jimmy your balance right at the end of the financial year with a withdrawal so that you can get more into super right after the start of the next financial year.
However, only the TBC amount (currently $1.9m) can be transferred into an account.based pension. Anything over that remains in an accumulation account, which is taxed at 15% on income and short-term capital gains and 10% on long-term capital gains. So if your tax payable outside super is nil, it may be better to keep it invested outside super.
How to use the bring-forward rule
You don’t need to notify anyone to start using the bring-forward rule. It is automatically triggered when you breach the annual NCC cap of $110,000.
If you contribute the maximum in the current financial year, that will trigger the bring-forward rule, and you will be unable to make further non-concessional contributions during the bring-forward period, which starts in the year it is triggered.
| Year | Max. remaining under bring-forward rule |
Contribution | Bring-forward rule triggered |
|---|---|---|---|
| 1 | $330,000 | $330,000 | Yes |
| 2 | $0 | $0 | Yes |
| 3 | $0 | $0 | Yes |
| Total contributions: | $330,000 |
If you have a lump sum that you want to get into super of more than $330,000, you could add the limit for the current financial year only of $110,000 – which does not trigger the bring-forward rule – and wait until the start of the next financial year where you can add 3 years’ worth of contributions. This way, you can get 4 years of NCCs ($440,000, or $880,000 for a couple) into your super within a year (potentially within weeks if the first is done in June and the next in July).
| Year | Max. remaining under bring-forward rule |
Contribution | Bring-forward rule triggered |
|---|---|---|---|
| 1 | $330,000 | $110,000 | No |
| 2 | $330,000 | $330,000 | Yes |
| 3 | $0 | $0 | Yes |
| 4 | $0 | $0 | Yes |
| Total contributions: | $440,000 |
Be aware that if you contributed more than the annual contribution limit of $110,000 in that year, you have triggered the bring-forward rule and have a maximum allowable amount over that year and the following two years of $330,000. So if you are putting in only a small amount above the annual limit and may have a lump sum to contribute in the next one or two financial years, it may be better to limit it to the annual cap.
| Year | Max. remaining under bring-forward rule |
Contribution | Bring-forward rule triggered |
|---|---|---|---|
| 1 | $330,000 | $120,000 | Yes |
| 2 | $210,000 | Yes | |
| 3 | Yes |
Important tip: you may accidentally trigger the bring-forward rule without realising it if you have made concessional contributions beyond your concessional contribution cap and you do not elect to withdraw the excess. In that case, the excess concessional contributions become non-concessional contributions and count towards your non-concessional cap and can potentially trigger the bring-forward rule unintentionally and unknowingly.
What if the non-concessional contribution cap increases
Once you have triggered the bring-forward arrangement, any change to the non-concessional contributions cap won’t apply to you. The bring-forward cap amount is based on the cap in the year it is triggered. So if you contributed $150,000 when the non-concessional contribution cap was $100,000, even after the cap increased to $110,000, you still only have the ability to contribute another $150,000 within the active bring-forward period that and the following two years.
Who is eligible for the bring-forward rule
To be eligible for the bring-forward rule, you:
- You must be under 75 for at least one day during the triggering financial year but must also contribute no later than 28 days after the month in which you turn 75.
- Must have a Total Super Balance at the end of 30 June of the previous financial year that:
- Is less than the Transfer Balance Cap ($1.9 million)
- has a capacity greater than the annual non-concessional contributions cap ($110,000). i.e., your total super balance must be less than $1.68 million.
- Must not already be in an active bring-forward period.
Tips for using the bring-forward rule
Tip 1 – interaction with catch-up contributions:
Pumping a lot into super may move your balance over the $500,000 mark where you can no longer make carry-forward (or ‘catch-up’) contributions). So if you want to get a lot of money into super and have a significant amount of unused concessional contributions from previous years, you will need to think carefully how to will gain the most benefit.
Tip 2 – using a second super account for non-concessional contributions:
A recontribution strategy is used to wash away tax that may otherwise be payable by non-dependent beneficiaries of your super upon your death. When using the recontribution strategy, you will likely want to recontribute to a separate super fund to make the strategy more effective. For the same reason, you will likely want to contribute any substantial amounts of non-concessional contributions to a separate super fund from where you contribute your regular concessional contributions. This will become clearer once I have written the article and put a link here.