12 December 2018
By Colin Lewis
So, you want to bolster your retirement nest egg by making a contribution to your super fund. Sounds simple enough … right?
Making a pre-tax ‘concessional’ contribution – that is, a personal contribution for which you claim a tax deduction and/or salary sacrifice contribution – is relatively straightforward. You need to be mindful that the total amount of concessionally taxed contributions that can be made by you and/or your employer is $25,000 in the current financial year before additional tax applies.
The amount you have in the superannuation system has nothing to do with this type of contribution.
Making an after-tax ‘non-concessional’ contribution (NCC), however, is more complicated.
So, if you’re trying to work out the maximum you can contribute this financial year then you need to follow these steps.
Step 1 – Know your ‘Total Superannuation Balance’
First and foremost, you need to know the total amount you had in the superannuation system, referred to as your ‘total superannuation balance’ (TSB), at 30 June 2018 as this dictates your eligibility to make an NCC.
If it’s $1.6 million or more then you can’t contribute. That’s right – zip – as an NCC!
It’s worth noting that certain after-tax contributions are excluded from the definition of an NCC and can, therefore, be made regardless of the amount of your TSB. For example, if you’re eligible to make a ‘downsizer contribution’ of up to $300,000 or ‘CGT cap contribution’ of up to $1.48 million.
You may be eligible to make a downsizer contribution if you sell a home that you or your spouse owned for a continuous period of at least 10 years and you are aged 65 or more.
A CGT cap contribution arises from the proceeds of sale of your business or other active business assets.
Step 2 – In 2016/17, did you trigger the ‘transitional’ bring-forward rule?
If your TSB was less than $1.6 million at 30 June 2018, then you need to look at what you contributed back in the 2016/17 financial year.
You need to know whether you triggered the ‘transitional’ bring-forward rule. This is an interim arrangement applying as we move from the old NCCs cap rules to the new and 2018/19 is the last year it will apply. It was triggered by contributing more than $180,000 back in 2016/17.
Be careful if you find you contributed more than $180,000 back then that it was not the tail end of a previous bring-forward period.
If you triggered the ‘transitional’ bring-forward rule then your NCCs cap is $380,000 over the three financial years 2016/17, 2017/18 and 2018/19 and the maximum you can contribute this year is any remaining balance to that amount.
For example, say you triggered the ‘transitional’ bring-forward rule in 2016/17 by contributing $200,000 and in 2017/18 you contributed $100,000. In this case, you can contribute up to $80,000 this tax year as the NCCs cap is $380,000. But if you contributed $180,000 last year then you’re unable to make an NCC this year.
If you took the opportunity to contribute $540,000 in 2016/17 then of course you can’t make an NCC this year.
Step 3 – In 2017/18, did you trigger the bring-forward rule?
If you didn’t trigger the ‘transitional’ bring-forward rule in 2016/17 then you need to see if you triggered the ‘standard’ bring-forward rule last financial year by contributing more than $100,000.
If you did then you need to know the bring-forward arrangement under which you contributed. That is, was it $300,000 over 3 years – the case if you had a TSB less than $1.4 million at 30 June 2017 – or $200,000 over 2 years – you had $1.4 million to less than $1.5 million at that date.
If it was the former then the maximum you can contribute this financial year is any remaining balance to $300,000 and if the latter any remaining balance to $200,000.
Step 4 – Neither bring-forward rule triggered
So, if you didn’t trigger the bring-forward rule in either 2016/17 or 2017/18 and the total amount you had in super – your TSB – was less than $1.4 million at 30 June this year then you can contribute up to $300,000.
If you had $1.4 million to less than $1.5 million then you can contribute up to $200,000, otherwise, the maximum you can put in is only $100,000.
Aged 65 or more
If you’re aged 65 to 74, you must have met the ‘work test’ – 40 hours of gainful employment in 30 consecutive days – before you can contribute concessional, non-concessional and CGT contributions.
If you’re aged 74, then you only have up until 28 days after the end of the month in which you turn 75 for the trustee to receive your contribution.
Note that the work test and age restriction don’t apply to downsizer contributions.
The change to the work test allowing you to contribute in the first year the work test is not met, provided your total superannuation balance is below $300,000, doesn’t come into play until 1 July next year.
So, if you’ve met the work test and eligible to contribute NCCs then steps 1 to 3 still apply.
However, step 4 differs in that if you haven’t triggered the bring-forward rule in either 2016/17 and 2017/18 and you were aged 65 to 74 at 1 July this year, then the maximum you can contribute is $100,000.
And this is simple super!