The bring-forward rule is a provision that allows Members to make non-concessional contributions (after-tax contributions) amounting to more than the contributions cap of $100,000 over a three-year period. Members can make up to 3 years’ worth of of non-concessional contributions in the First Year by bringing forward the caps of the next 2 years. However, this rule only applies if you are under the age of 65.
Bring-Forward Provision for People Under 65
If you are under 65 years old and you make excess non-contributions, the bring-forward rule will automatically be triggered and bring forward the next two years’ non-concessional contributions – but certain conditions apply. This means:
- If the bring-forward rule is triggered prior to 1 July 2017, the total amount of non-concessional contributions you can make to your SMSF over a three-year period is $540,000.
- On the other hand, if the bring-forward rule is triggered after 1 July 2017, you can make a total of $300,000 over a three-year period as your non-concessional contributions.
When the non-concessional contributions made to your SMSF exceed $100,000, the bring-forward rule is automatically triggered. Once this happens, the normal non-concessional contributions cap does not apply to the next two years. However, the total non-concessional contributions for the three-year period cannot exceed $300,000.
- Excess concessional contributions (before-tax contributions) count towards the non-concessional contributions cap and can trigger the bring-forward provision.
- Life insurance premiums and fund fees can count as contributions.
For more info on how much you can contribute to your SMSF and the applicable interest rates charged by the Tax Office on excess contributions, please see the ATO website by clicking here.
Bring-forward rule for individuals who are turning 65
The bring-forward rule can’t be utilised by those who are aged 65 or over. The maximum amount an individual aged 65 or over can contribute is $100,000 per annum. In addition, in order to make contributions to your SMSF, you are required to satisfy the work test. Excess non-concessional contributions should be withdrawn from the SMSF; otherwise the excess amount may be taxed at you marginal tax rate.
- Before you turn 65
If you are aged 64 years or younger on 1 July 2017, you can take advantage of the bring-forward rule for the entire Financial Year. This means that you can make a $540,000 non-concessional contribution in the Financial Year that precedes the year in which you turn 65, assuming that the bring-forward rule has not been triggered in previous years.
- After you turn 65
If you were 64 years old or less on 1 July 2017 and you turn 65 during that year, you can still make contributions to the SMSF. You are required to satisfy the work test before making such contributions (either concessional contributions or non-concessional contributions).
General questions around the bring-forward provision
The following points are aimed at helping Trustees who are still confused about how the bring-forward provisions work and how to use it to their advantage.
The bring-forward applies to each Member of the SMSF. Each Member can potentially contribute up to $540,000 (FY 2016/2017) or $300,000 (FY 2017/2018) in the first year if the bring-forward rule is triggered. However, the bring-forward rule only applies to those under 65 years of age.
The bring-forward rule only applies to future years’ contributions. Hence, you will not be able to contribute $540,000 in the last year. If you fail to utilise your non-concessional cap for one or more years, then the cap for those years are gone forever.
The bring-forward provision allows you to maximise your total non-concessional contributions for a total of $540,000 (FY 2016/2017) or $300,000 (FY 2017/2018) in Year 1, rather than over a three-year period. However, in order to gain maximum benefit from it, it is important that you understand how the rule works.
In year 1, you make non-concessional contributions for a total of $200,000 during the FY 2016/2017. As the amount you contribute to the SMSF is over the contributions cap, the bring-forward rule will automatically be triggered, allowing you to bring over the contributions cap for the next 2 years (Year 2 and Year 3). However, as the cap for a three-year period is only $300,000 for FY 2017/2018, in Year 2 and 3, you are only allowed to contribute up to $100,000 to stay within the cap. If you contribute more than $100,000, you will then be liable for the excess contribution tax on the excess amount.
If you want to contribute more than $100,000 then you would need to wait until Year 4, when the bring-forward is reset, then you can contribute more into the SMSF.
For more info on how you can utilise the bring-forward, please see here.