In my last editorial, I confirmed the Consumer Price Index result reported earlier this year was not at a level sufficient to trigger another round of indexation that would have resulted in an increase in the general transfer balance cap from $1.9 million to $2 million.
However, the month of February saw another measure, average weekly ordinary time earnings, trip the indexation criteria for another threshold in the superannuation system – the concessional contributions cap.
Without going into the granular detail of the rules, it means the yearly concessional contributions cap will increase from $27,500 to $30,000 from 1 July. This in turn will mean an increase in the annual non-concessional contributions cap as well, given this limit is set at four times the concessional cap. As such, the non-concessional contributions cap will jump from $110,000 per annum to $120,000 also from the commencement of the new income year.
Further, the change will see the non-concessional contributions amounts under the bring-forward rules rise from $220,000 to $240,000 for a two-year period and from $330,000 to $360,000 for the full three-year period.
Strangely enough the ability to take advantage of these bring-forward provisions will be slightly easier given the interaction between the contributions caps and the general transfer balance cap.
As mentioned above, the general transfer balance cap will be staying at $1.9 million. This threshold determines whether an individual has the ability to make non-concessional contributions in the first place when assessed in the context of a person’s total super balance.
To this end, if a member’s total super balance is $1.9 million or more, they will be unable to make any non-concessional contributions. However, where their total super balance falls short of the general transfer balance cap amount, the extent of the shortfall will also determine how much of the bring-forward provision will be applicable to them and this is where the system gets a little complicated.
The ability to take advantage of the bring-forward non-concessional contributions rules is conditional to certain total super balance bands that are themselves determined by the subtraction of multiples of the yearly non-concessional contributions cap from the general transfer balance cap.
Currently, an individual with a total super balance of less than $1.68 million ($1.9 million less $110,000 x 2) can use the full non-concessional bring-forward contribution amount of $330,000 in a given year. Come the new financial year, a total super balance of $1.66 million ($1.9 million less $120,000 x 2) will put them in this category as this is determined by subtracting the non-concessional cap from the general transfer balance cap and will allow them a bring-forward contribution amount of $360,000 in a single year.
Similarly, effective 1 July, a person with a total super balance falling between $1.78 million ($1.9 million less $120,000) and $1.66 million will be able to bring forward $240,000 worth of non-concessional contributions. This changes from the current rules that allow individuals with a total super balance between $1.79 million and $1.68 million to bring forward non-concessional contributions of $220,000 in one year.
Further, the new income year will see fund members with a total super balance between $1.9 million and $1.78 million only able to make a non-concessional contribution of $120,000 in one year. Currently, individuals are restricted to making a non-concessional contribution of $110,000 in a single year if their total super balance is between $1.9 million and $1.79 million.
This is another illustration of how the different thresholds interact and how aware of them an SMSF member must be to implement one of the most fundamental aspects of the retirement savings framework – making a contribution to their fund.
''