From July 1st 2021 the concessional and non-concessional contribution caps are set to increase due to indexation as follows:
For a start, indexation of the concessional contributions cap (from $25,000 to $27,500) automatically flows through to an increased non-concessional cap ($100,000 will become $110,000) and the general transfer balance cap will also increase (from $1.6m to $1.7m) from 1 July 2021.
This is where things get a little complex, but we can also now populate the table of bring forward thresholds and amounts for 2021/22. It’s complex because it depends on both the increasing general transfer balance cap and the increasing non-concessional contributions cap.
The $1.59m threshold above is:
The general transfer balance cap ($1.7m)
1 x the annual non-concessional contributions cap ($110,000)
Importantly, the same table applies to everyone. While the personal transfer balance cap will be different for different individuals from 1 July 2021, this table of contribution thresholds depends on the general transfer balance cap ($1.7m) regardless of the individual’s personal cap.
There are a number of important flow on impacts for clients.
Those considering large non-concessional contributions will need to think carefully about whether they do that in 2020/21 or 2021/22.
Consider a 60-year-old client with a $1m total superannuation balance at 30 June 2020 who has not previously used the bring forward rules but is about to do so.
Contributing $300,000 now locks in the 2020/21 non-concessional cap of $100,000 for all three years (2020/21, 2021/22 and 2022/23) even though the cap will actually increase next year. All other things being equal, it may be preferrable to contribute $100,000 now and $330,000 in July 2021.
They have a delicate balance between:
For example, if this client’s total super balance was instead $1.35m at 30 June 2020, a $300,000 contribution would clearly be possible in 2020/21.
Contributing $100,000 in 2020/21 instead, however, might mean their balance at 30 June 2021 scrapes over one of the new thresholds ($1.48m). Their non-concessional contributions would be limited to only $220,000 in 2021/22 (a bring forward period of two years rather than three).
All that said, even this outcome is not such a bad thing. While it might not be as much as they had hoped ($100,000 in 2020/21 and $330,000 in 2021/22), the total contributed for the three years up to 30 June 2023 would be $320,000 ($100,000 in 2020/21 plus $220,000 in 2021/22). That’s still better than putting the full $300,000 in now.
We all like to think that bring forward periods are carefully considered and happen exactly when the client meant to use these rules to maximise their non-concessional contributions.
In fact, remember that they are triggered automatically whenever the annual non-concessional cap is exceeded. The contributor has no choice about the period of the bring forward. If someone with a total super balance of $1m at 30 June 2020 has even 1 cent more than $100,000 counted for their non-concessional contribution cap in 2020/21, they will automatically lock in a three year period up until 30 June 2023 and their non-concessional contributions over that time will be limited to $300,000.
Traps for the unwary are small contribution amounts that have been forgotten about which cause the person to exceed the cap even though they thought they had only contributed $100,000. For example:
A strategy sometimes employed by those who need a large tax deduction in one year but not the next is the “double deduction” strategy. A common example for someone who is (say) no longer receiving employer contributions is:
So what’s different now? If that strategy is being adopted for 2020/21, don’t forget that the second contribution in June 2021 can be $27,500. This is because it’s being tested against the 2021/22 concessional contributions cap – and by then, the cap will be $27,500.
An increase in the contribution caps can only be a good thing for clients targeting higher super balances to help optimise their financial position. Whilst it gets a little complex, the strategy opportunities at a client by client are significant.
To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
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