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‘Quirks’ with contribution rules causing client confusion

Tim Miller
Miranda Brownlee
21 October 2020 — 2 minute read

Age has become a complicated factor with the rules for non-concessional contributions following recent changes to the work test and the bring-forward measures which have not yet been passed, says a technical expert.

In a technical bulletin, SuperGuardian education manager Tim Miller explained that from 1 July 2020, anyone under the age of 67 is eligible to make non-concessional contributions without having to satisfy the work test.

“However, as it currently stands, any member who is aged between 65 and 74 on 1 July can only utilise the standard non-concessional cap of $100,000, with those 67 and over having to meet the work test,” Mr Miller said.

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“This means for now these members are not [yet] entitled to use the bring-forward provisions. However, there are also some quirks if the member has triggered the bring-forward rules prior to their 65th birthday.”

Mr Miller gave an example of Jack, who only has the capacity to contribute $110,000 in the 2020–21 year.

“When he makes the $110,000 contribution, he triggers the bring-forward provision, giving him the ability to contribute a further $190,000 up until 30 June 2023, subject of course to his total superannuation balance,” he said.

“For the 2021–22 year, Jack will be 65, turning 66. Given the contribution age increase, Jack will be able to contribute the balance in that year without having to satisfy the work test at all, just the total superannuation balance test.”

However, if Jack wants to contribute the $190,000 remaining in his bring-forward amount, then depending on the date of the contribution, he may now have to satisfy the work test in order to utilise the remainder of the bring-forward limited.

Prior to 1 July 2017, Mr Miller said the fund could not accept an amount that exceeded what was called the fund capped contribution limit, which for someone previously over the age of 65 was the single year non-concessional cap. 

“This meant that, previously, Jack could not contribute $190,000 in a single contribution after his birthday but rather would have to split the amount into separate transactions. However, this impediment has been removed, ensuring Jack can contribute the full remainder of the bring-forward amount, subject to the work test and the total superannuation balance at the preceding 30 June, as long as the bring-forward has been triggered in the appropriate year,” he noted.

Age is therefore a factor that complicates the non-concessional rules and bring-forward provisions, he said.

“The hope is that before too long, individuals will be able to trigger the bring-forward at any time prior to their 67th birthday. Passage of the law will remove one complication,” Mr Miller said.

He said the introduction of the 12-month work test exemption can also cause confusion and result in mistakes being made; however, it can also prove to be extremely valuable for some.

“It is important to distinguish this measure from the increase in the contribution cut-out age from 65 to 67,” he said.

Since 1 July 2019, an individual who is now 67 or over and no longer working can make superannuation contributions subject to satisfying two conditions.

“The first condition is that the individual must have satisfied the work test in the financial year immediately prior to the year of the contribution, and the second requirement is that the individual’s total superannuation balance at 30 June immediately prior to making the contribution is less than $300,000,” he explained.

“To satisfy the work test in the previous financial year, the individual must have been gainfully employed for at least 40 hours in 30 consecutive days.”

Mr Miller said that when it comes to superannuation contributions, the maze between what is the law and what is not yet law will often lead to confusion, genuine mistakes and missed opportunities. 

“Whether it be the anticipation of legislation working its way through Parliament, the expectation of indexation occurring at a future date or the uncertainty of future market performances, all of these matters impact the capacity for clients to undertake various contribution strategies,” he said.

Miranda Brownlee

Miranda Brownlee

 

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 has also directed SMSF Adviser's print publication for several years. 

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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