The government has introduced new rules relating to Non-concessional Contribution Caps and exceeding Concessional Contribution Caps.

Non-concessional contribution caps

New rules allowing individuals to initiate a “bring forward” of future years’ non-concessional contribution caps up until the year they turn 67 (rather than 65) have finally passed. They will apply from 1 July 2020.

At any given time, non-concessional contribution caps depend on two factors:

  • The size of an individual’s total super balance, and
  • Whether or not they are allowed to initiate a “bring forward” and use future years’ contribution caps in a current year.

Assuming the total super balance isn’t a problem, whether or not someone is allowed to initiate a bring forward depends on their age.

In 2019/20 and earlier years, the magic age was 65. Specifically, the rules provided that a bring forward could commence any time up until the end of the year in which the member turned 65. (Note that it’s the end of the year, not their birthday that’s important for this measure).

Once upon a time, that age had some logic – 65 was also the age at which someone making these non-concessional contributions had to meet a work test.

But from 1 July 2020, work tests were pushed out to age 67 and it therefore made sense to align the bring forward age. It’s taken some time but we’re finally there.

The rules are exactly the same as they’ve always been except 65 has been replaced by 67 – the final time at which a bring forward can now be initiated is the end of the year in which the individual turns 67.
And the quirks?

This change only applies for 2020/21 and beyond. So someone who turned 66 in May 2020 could potentially be:

  • Eligible to initiate a bring forward in 2018/19 (the year they turned 65),
  • Ineligible in 2019/20 (the new rules hadn’t come in and they turned 66 this year), and
  • Eligible again in 2020/21 (the new rules apply and this is the year in which the member turned 67).

Exceeding Concessional Contribution Caps

Another change just passed by Parliament that relates to the consequences of exceeding the concessional contribution cap.

Historically, there were three consequences when the concessional contributions cap was breached:

  1. The excess was retrospectively added to the individual’s personal taxable income for the year in which the contribution was made and taxed like other income, less a special tax offset of 15% (to reflect the tax already paid by the super fund). This usually resulted in an extra tax bill being issued to the individual,
  2. There was a special additional amount to pay called the “excess concessional contributions charge”. Conceptually this was like interest on the extra tax bill, and
  3. Unless the excess (less 15% contributions tax) was taken out of superannuation, it would count towards the individual’s other contribution cap – the limit on non-concessional contributions. If this in turn caused the individual to exceed their non-concessional cap, refunding that excess was generally the only financially sensible option.

The change from 1 July 2021 will be to remove (step 2 above) – there will no longer be an excess concessional contributions charge. Note that this only applies for contributions during 2021/22 and beyond.

For more information please discuss with your Client Relationship Manager.

Source: Heffron