SMSF Technical Education & Strategies

 

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The 3 yr bring forward rule for non-concessional contributions

As you may have seen from one of the previous articles, there is a limit to how much you can contribute to your SMSF as a non-concessional contribution. Generally this limit is set to 6 times the amount of the concessional contribution limit. However, there is an exception.

As of the 2010/11 year, the concessional contribution limit is $25,000. Therefore, the non-concessional limit is $150,000 (i.e. 6x). However, this is not the maximum amount you can contribute in one year.

 

There is a provision that allows you, if your under the age of 65, to bring forward two additional future years of contributions to make a larger one off contribution. This therefore enables you to contribute up to $450,000 in a single year, or if preferred, other amounts spread out over the 3 yr period that add up to no more than $450,000.

 

The key point is that the minute you exceed the $150,000 limit in one year, you trigger the bring forward rule as of that year.

 

Here's an example:

James is 52 years old and wants to start getting more of his non-super capital into the tax friendly super environment. He sells an investment property in August 2011, and after paying back the loan, is left with $250,000. He decides to make a non-concessional contribution to his SMSF of the full $250,000.

 

In this instance James has exceeded his non-concessional contributions cap by $100,000 and therefore has triggered the bring forward rule. Over the remaining period of 2010/11, 2011/12, and 2012/13, he cannot make concessional contributions of any more than $200,000. (i.e. $450,000 - $250,000).

 

If he does, the excess amount will be subject to excess contributions tax of 46.5%, which would be a very poor result. Therefore, you must ensure that if you trigger the bring forward rule, that you keep track of all your contributions over the 3yr period to ensure you don't exceed the cap.

 

Also be aware that any concessional contributions made over the concessional contribution cap will be treated as non-concessional contributions and count towards that cap. You'll need to keep track of those also to ensure they don't tip you over the limits. This can result in double excess taxation, with an effective tax rate of 93% !! Avoid this appalling situation at all costs.

 

Note on idexation: If you trigger the bring-forward provision in a particular year, any indexation of the non-concessional contributions cap for the subsequent two years will not apply to you.