Calculating contribution limits when thresholds are changing

My client Judy had $1.5m in super at 30 June 2022. She was originally going to make non-concessional contributions of $220,000 this year (the maximum amount possible). But should that change? If she’s already made some of these contributions, is it too late?

It’s definitely a good time to revisit plans made at the start of the year for large non-concessional contributions as it’s possible these plans should change.

Let’s assume Judy is comfortably under 75 and hasn’t made non-concessional contributions in the recent past. In other words, she’s not already in the midst of using the bring forward rules for these contributions but has plenty of time to do so.

Someone in her position (with a total super balance of $1.5m at 30 June 2022) could use the bring forward rules in 2022/23 to contribute two years’ worth of non-concessional contributions (using the 2022/23 and 2023/24 caps in a single year). If she does so, she locks in $220,000 (at most) for those two years. Remember she can’t contribute three years’ worth of contributions because that’s only available to someone with less than $1.48m in super at 30 June 2022.

But don’t forget that next year (2023/24), the transfer balance cap is increasing to $1.9m. That means all the thresholds for non-concessional contributions increase as follows:

The changes means that, in fact, if Judy hasn’t made any contributions yet, she might be better to change her plans.

As long as her total super balance is less than $1.68m at 30 June 2023, she will be able to contribute $330,000 in 2023/24 (using her caps for all three years up to 30 June 2026). Currently that option isn’t available to her.

So now that she knows all the thresholds are going up next year, she could consider:

• limiting her contributions to no more than $110,000 in 2022/23, and
• a $330,000 contribution in 2023/24.

That gives her $440,000 “soon” rather than only $220,000.

If she’s worried about her 2022/23 contribution getting her balance too close to the magic limit of $1.68m at 30 June 2023, she could contribute a little less than $110,000 or even withdraw a small amount from her existing balance (if she’s reached the age where that’s possible).

Or she could just not worry about it. If she’s only a fraction over $1.68m (say $1.75m) then what’s the worst that can happen? She will be allowed to contribute $220,000 in 2023/24 (with nothing further until 1 July 2025) as she’ll still fall comfortably within the threshold for that level of contribution (see the table above). She’s still been able to contribute $330,000 “soon” rather than only $220,000.

What if Judy has already made (say) $140,000 in non-concessional contributions this year?

Unfortunately this could throw a spanner in the works. This is because contributing even 1c more than $110,000 in 2022/23 means she has triggered these bring forward rules. Doing so will automatically lock in whatever cap she’s entitled to – in this case a 2 year / $220,000 bring forward. She can’t choose to have $30,000 of her contributions treated as being an excess in order to limit her contributions to $110,000 for 2022/23. Nor can she use the increased thresholds in 2023/24 to let her have a 3 year / $330,000 contribution cap.

All she can do from here is contribute a further $80,000 any time between now and 30 June 2024. In fact, we usually advise clients to get the full amount in during the first year (ie, contribute the remaining $80,000 before 30 June 2023). That’s because there’s one final potential sting in the tail when it comes to these rules. Judy has already contributed $140,000 and triggered her 2 year bring forward. BUT if her total super balance happens to reach $1.9m or more at 30 June 2023, she actually won’t be able to “finish off” using her bring forward cap (ie, contribute the remaining $80,000) in 2023/24. In other words this final check applies every single year for everyone (regardless of whether or not they are in a bring forward period) : the non-concessional cap is re-set to $nil if their total super balance is $1.9m or more at the end of the previous year.

Of course in Judy’s case, once the 2024/25 financial year commences, she’s back in business. At that point, she’d compare her 30 June 2024 total super balance to the thresholds applicable for 2024/25 and may well be able to contribute 1, 2 or even 3 years’ of non-concessional caps at that time. It will be a moving feast until she turns 75.

For a comprehensive explanation of the bring forward rules, try our Education Bites online learning program. We have an entire module dedicated to the ins and outs of these rules. Learn more here.