Amendments to bring-forward rule in limbo
With the amendments to the bring-forward rule for over-65s failing to pass Parliament last week, clients turning 65 are now facing a conundrum, says a technical expert.
Due to the non-passage of legislation last week, SuperGuardian education manager Tim Miller said careful consideration, and possible action, may be required before 30 June for clients with less than $1.5 million who have turned 65 during 2019–20 and will no longer meet the work test.
The government introduced draft legislation in March which would allow eligible individuals to utilise the bring-forward rules up to age 67, currently 65, without satisfying the work test and without being treated as an excess non-concessional contribution, to be effective from 1 July 2020.
However, the law didn’t pass before its commencement date, and Parliament won’t sit again until the next financial year, Mr Miller explained.
“While there is no evidence to the contrary suggesting the law won’t pass, there are no guarantees that it will, hence why we were hopeful it would pass last week. This is a conundrum for those who turned 65 this year,” he said.
Mr Miller said for clients who are nowhere near the current $1.5 million bring-forward eligibility threshold, and more to the point, nowhere near the $1.3 million amount that triggers the full bring-forward, it is unlikely they will be disadvantaged by waiting for whether the law passes or not.
“They can contribute $300,000 over the three-year period, inclusive of this year, and by waiting, may benefit from the potential indexation of the non-concessional cap in the final year,” Mr Miller said.
“The same client will benefit significantly if the law passes because, if they contribute $100,000 this year, $100,000 next year and then potentially a full three-year bring-forward amount inclusive of any indexation in their 67th year, that could give them a $200,000-plus leg up over a bring-forward contribution now.”
A 65-year-old client who has under $1.4 million but over $1.3 million may, on the other hand, think it wise to utilise the full $300,000 this year as predicting the law and future market returns could result in limited future contribution capacity, he explained.
“Of course, for that client a lot will hinge on the fund investments and the passage of law. If the market is flat for a sustained period, then they may benefit from waiting, but if the market recovery is swift, their balance may disqualify them from any future use of the bring-forward, if passed,” he stated.
Mr Miller said that an important consideration is the member’s total superannuation balance.
“While on face value it would appear most balances won’t have grown much since last year, excluding contributions, there is no certainty that 2020–21 will repeat that and it may not take much of a market rise to alter contribution eligibility in 2021–22,” he said.
“That year, of course, would be the third year in a current bring-forward cycle and/or the 67th year for those current 65-year-old clients contemplating a wait-and-see approach. Ultimately, there are a lot of what-ifs but only a week to make a decision about which approach to take.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.