Utilising the Bring-forward rule can be of excellent strategic benefit, enabling those under the age of 66 at any time in a financial year, to consolidate a greater amount of funds into their retirement nest egg.
The Australian Superannuation system is a tax haven that can significantly reduce the tax paid on investment earnings, and once you’ve retired, transitioning into an account-based pension can reduce tax to 0%.
This has been changed to now allow those 66 and under to apply for this scheme, allowing more people drawing closer to retirement to contribute to their super funds in a tax-effective manner.
Knowing that it can be highly advantageous from a tax point of view, the basis of many retirement plans involves transitioning as much wealth as possible into the Superannuation environment. However, a common problem that can inhibit one’s plan are the contribution caps imposed which limit the amount of funds you can contribute into Super. 2021/22 – These are:
– $110,000 Non-concessional (IE: Post-tax contribution)
– $27,500 Concessional (IE: Pre-tax contribution)
What is the Bring Foward Rule?
In any given financial year, an individual is eligible to contribute to super non-concessionally (after-tax) are capped at $110,000 p.a. The Bring-forward rule allows those under the age of 65 at any time in a financial year to “bring forward” two future years’ worth of non-concessional cap.
This means that they can contribute up to $330,000 in one financial year without exceeding their non-concessional cap as of the 1st of July 2021.
The Bring forward rule is triggered once an individual exceeds their annual non-concessional cap, such that if you were to contribute $175,000 non-concessionally to Super during FY21-22, you would breach your non-concessional cap by $75,000 and assuming your eligible would trigger the bring-forward rule during FY21-22.
From then, you would be entitled to make further contributions of up to $125,000 during the year it was triggered and the proceeding two financial years.
Who Is Eligible to Use the Bring Forward Rule?
In order to be eligible to trigger the Bring Forward rule you need to meet the following criteria:
- Have a total combined Superannuation balance of less than $1,700,000 at the end of 30th June of the previous financial year;
- You must be under 65 years of age during the financial year in which the Bring Forward rule would be triggered; and
- Must contribute more than the annual allowable non-concessional cap which is $110,000 during FY21-22.
One exception to the eligibility criteria requiring one to be under 66 years of age during the financial year in which the bring-forward rule is triggered is through the use of the Work Test Exemption (WTE), which would allow anybody who was both 64 years of age and met the required work test in the previous financial year and had a combined super balance less than $330,000, to utilise the bring-forward rule in the proceeding financial year even if they were aged 66.
For more information on the Work Test Exemption please see our other article.
Limitation based on Super Balance
A limitation placed on the Bring-forward by the ATO is limiting an individual’s entitlement to bring forward future non-concessional contributions based on their total superannuation balance at the end of the previous financial year.
Should your balance be less than $1.4m, an eligible person is entitled to bring forward the standard two proceeding years. If between $1.4m and $1.5m, they can only bring forward one proceeding year, between $1.5m to $1.6m they can only contribute the standard non-concessional cap amount of $110,000 and if above $1.7m the individual is no longer entitled to make non-concessional contributions under both the bring-forward rule and standard contribution rules.
These limitations are summarized in the following table:
When Might This Be Useful?
A whole array of differing circumstances can warrant utilising the Bring forward rule however the most common intention is to consolidate as much funds into the Superannuation environment as possible.
Examples of when it could be useful, but are definitely not limited to, the contribution of investable funds into super where it is taxed more concessionally, implementing it in conjunction with a downsizer contribution to consolidate surplus property sale proceeds into super or even as part of a re-contribution strategy to assist a healthy estate plan by making super funds more tax effective for non-tax dependents.