Timing strategies to navigate risky thresholds in contribution cap changes

BT head of technical services Bryan Ashenden said that this would be a perfect opportunity for advisers to work with clients to retune strategic considerations in terms of managing different thresholds during the changes.

“If you have clients who have the ability to maximise their contributions to the current cap, it is worth having the conversation to say, from 1 July, should we look at increasing that and particularly if they’re doing it through salary sacrifice as opposed to the personal deductible contribution,” Mr Ashenden said.

“Ask them if we want to look to make changes to those salary sacrifice arrangements to lift it together to the $27,500 rather than retaining it at the $25,000 level.”

Mr Ashenden also recommended to begin setting up a strategy on timing the contributions.

“This is particularly an issue for people who are getting close to the cap but also getting close to age 67 where the work test comes into play,” he said in the webinar. 

“The question is, do we make contributions this financial year or do we wait until next financial year and what does that look like in terms of the best aspect for clients?

“Often, the strategy we always talk about is bringing things forward and getting in there now, but again, this might be a reason why for clients that are a certain age and how close they are close to that total super balance, maybe waiting would be better to consider.”

Strategic thresholds to consider  

Along with the interplay between the indexation of the transfer balance cap and contribution caps, there are a whole range of other contribution thresholds that come into play for strategy when looking from a superannuation perspective, according to Mr Ashenden.

“Things to consider include the downsizer amounts; they’re not indexed and still sit at $300,000,” he said.

“The $500,000 cap to access the carry forward of concessional contributions where you got to have your total super balance below $500,000, that cap doesn’t get indexed; yes, the amount of carry-forward concessional contributions might increase because you’ve got a higher limit, but it still stays at the $500,000 cap.

“Furthermore, considerations for the $300,000 threshold limitation that comes into play where, for 12 months after you have ceased working, you actually have a one-off opportunity to put in a contribution without the need to meet the work test also doesn’t get indexed.”

In terms of bring-forward provisions, Mr Ashenden recommended to hold steady for the time being until the new parliament sittings in order to ascertain additional strategic considerations.

“Remember, if you wanted to trigger the bring-forward provisions this year and wanted to do the full $300,000, the client would have to have less than $1.4 million inside super as of 30 June 2020,” he said.

“So, you just have to make sure you recognise the changes that are going to come through because of the total super balance change and then also it now becomes 3 x $110 000.”

For existing clients who are already in a bring forward, Mr Ashenden noted there is essentially no change, so if they are currently working their way through year one or year two in consideration of the bring-forward rules.

“The fact that the non-concessional cap indexes at 1 July mean they don’t get any benefit from it because the amount of your total contributions for that bring-forward period is three times or two times if it’s a two-year period, but it’s three times what the non-concessional cap was for the first year,” he said.

“So, it’ll be 3 x $100,000 where you get no benefit from that indexation; however, the one bit of benefit you do get is when you get to those subsequent years to be able to use the bring forward, you still have to assess your account balance on what is that total super balance threshold for that particular year.

“So, you can be in a position where a client was able to trigger the bring forward but you find out that is at 30 June, they were above the $1.6 million, which means in the next financial year even though they have some bring-forward capability left, you can’t actually do it because you’re going to exceed the $1.6 million threshold.

“You will get the benefit in your future to use though about moving to the $1.7 million threshold, so it may create opportunities and openings to potentially consider.”