Linda Bruce, senior technical services manager for Colonial First State, said that for the first time in history, in the 2024–25 financial year the bring-forward non-concessional caps will increase but the total super balance threshold that determines whether a client can use the two- or three-year bring forward non-concessional cap will decrease.
“This is something we have never had to deal with before and it can have an impact on the strategies that advisers are recommending for their clients,” Bruce said.
Craig Day, head of technical services for CFS, said the standard non-concessional contributions cap, which is currently $110,000 for this year, is rising to $120,000 next year, which means that the two-year bring forward non-concessional cap will increase to $240,000 and the three-year bring forward cap will increase to $360,000.
However, it is the total super balance threshold that determines whether a client can use the two- or three-year bring forward rules, and that is calculated by subtracting one or two times the non-concessional cap from the general transfer balance cap of $1.9 million, which is not going up. As a result, the total super balance thresholds will be reduced next year. There is indexation on the non-concessional cap but not on the TSB thresholds.
Bruce said due to this anomaly, one strategy for certain clients is to trigger the bring-forward cap in the current financial year if the decreased total super balance threshold makes them ineligible to use the bring-forward non-concessional cap next financial year.
She also said that once the bring-forward cap is triggered, the bring-forward cap will remain unchanged during the bring-forward period.
“If a client triggers the bring-forward non-concessional cap in the current year, the bring-forward cap is based on the current financial year’s standard annual cap of $110,000. So, if the client triggers the bring-forward cap in the current financial year, they’re not able to use any of the indexed or increased annual cap amount during the bring-forward period,” Bruce said.
This means as soon as a client triggers the bring-forward rule this year, their non-concessional bring-forward cap is locked in during the bring-forward period. For example, if the client has the three-year bring forward cap available based on their total super balance on 30 June 2023, their bring-forward non-concessional cap this year is $330,000, which is three times the current year’s standard cap of $110,000.
The non-concessional cap next year is $330,000 less what they used in year one and the non-concessional cap in the final year is simply $330,000 less what they used in year one and year two combined.
“What that means is that if you’ve got a client that has previously triggered the bring-forward rules before the annual cap is indexed, and they’re still within their bring-forward period, they don’t get the benefit of this increase until they’re outside their bring-forward period,” she said.
“In this kind of situation, the client may be better off not triggering the bring-forward rule this year, and instead they may want to trigger the bring-forward rule in the next year should their total super balance allow them to do so. This way they can use a higher three-year bring forward cap, which would be $360,000 rather than the $330,000 cap.”
However, Bruce warned that advisers should be mindful of the non-concessional total super balance thresholds for triggering the two-year and three-year bring forward non-concessional cap as they will go down from the next year.
“Advisers need to be mindful if they are recommending the client add an additional amount to their super in the current year, these additional contributions should not push the total super balance beyond the relevant thresholds,” she said.
“The client may need to contribute less than planned in the current year to make sure that the total super balance on the upcoming 30 June can be lower than the relevant bring-forward threshold.”
