By Peter Kelly
(Realise Your Dream)
29 September 2021
It is 10:15AM on a Thursday morning.
I have just come back to my desk with my third cup of coffee for the day – I must cut back on caffeine, I remind myself.
An email arrives in my inbox – nothing unusual about that.
A financial adviser is asking about the maximum non-concessional contribution their client, who is about to turn 67, can make to their superannuation fund.
Just to recap, a non-concessional contribution is a personal contribution made by an individual on their own behalf, or a contribution they make for the benefit of their spouse.
This is a fairly innocuous question and one that should only require a short response. However, things are not so simple.
To provide an accurate response to this question, a couple of questions need to be considered.
Who said superannuation wasn’t exciting?
Let’s look at those questions and see if our adviser’s client can make a non-concessional contribution to super and, if so, how much?
Did the client have a total superannuation balance of less than $1.7m?
A person’s total superannuation balance is the total amount they have in superannuation, both in accumulation and pension accounts, calculated as at the most recent 30 June.
If a person has a total superannuation balance of $1.7m or more, they are unable to make any non-concessional contributions.
What is the client’s current age?
If under 67, contributions can be made without having to be gainfully employed or self-employed.
If aged from 67 to 74, a work test must be met to be able to contribute.
The work test requires a person be gainfully employed or self-employed for at least 40 hours, worked within 30 consecutive days, in the financial year in which the contribution is to be made.
In some limited cases, a person may not have to meet the work test provided it was met in the previous financial year.
Once a person turns 75, non-concessional contributions can no longer be made, even if the work test is met.
However certain other types of contributions can be made including compulsory employer contributions and “downsizer contributions”.
The client’s age at the time the making the contribution is the critical consideration, and not their age at the start of the financial year.
As the adviser’s client has not yet turned 67, they can contribute without having to meet the work test.
Has the three-year bring forward rule been triggered in the current, or either of the two previous financial years?
A person may be able to contribute up to three years of non-concessional contributions is a single year. However, when the three-year rule has been triggered, the amount that may be contributed in the following two financial years is restricted.
The three-year bring forward rule is triggered when a person contributed more than $100,000 in either 2019-20 or 2020-21, or more than $110,000 in 2021-22.
The amount that can be contributed using the three-year rule is also dependant on the client’s total superannuation balance at the previous 30 June.
In addition, the three-year bring forward opportunity to maximise non-concessional contributions, and potentially contribute up to $330,000 in a single year, is only available to people who were aged 66 or younger at the beginning of the financial year in which they intend to make their contribution. If aged, 67 or older on 1 July, they are unable to take advantage of the three-year bring forward opportunity.
In summary, our adviser’s client is about to have their 67th birthday.
Provided their total superannuation balance on 1 July 2021 was less than $1,700,000 and they had not exhausted their three-year bring forward cap in either 2019-20 or 2020-21, they should be able to make a non-concessional contribution prior to their 67th birthday without having to meet the work test. If they have met the work test, they will be able to make their contribution at any time up until 30 June 2022.
Furthermore, as they were 66 on 1 July 2021, and assuming they had not triggered their three-year bring forward cap in the previous two financial years, they may make a non-concessional contribution of up to $330,000 provided their total superannuation balance at 30 June 2021 was less than $1,480,000.
Making contributions to superannuation, particularly in the lead up to retirement can be complex. If the non-concessional contribution cap is exceeded, additional tax is payable, and the excess must be withdrawn from the superannuation system.
Seeking advice from a qualified financial planner can help to ensure you don’t trip over any of the complex web of rules.
I think it is time for another cup of coffee!