29/07/2014

If the bring forward rule has been used to include the 2014/15 or 2015/16 financial years then members must be aware of how the change to contribution caps during this period will be treated by the ATO.  

Slip ups will lead to financial penalties.

The non-concessional contributions annual maximum contribution (colloquially 'the cap') increased from $150,000 per annum to $180,000 per annum from 1 July 2014.  

These are the contributions which are generally referred to as 'after tax' contributions and are the personal contributions for which the member does not claim a tax deduction.  

The bring forward rule means a member (who is 64 years old or less) can make a contribution for more than the annual limit by 'bringing forward' the next two years of annual contribution amounts, making a total contribution of three years' worth of maximum annual contribution.  

So if a member used the bring forward rule before 1 July 2014 the bring forward cap was $450,000 ($150,000 per annum x 3 years).  

If a member used the bring forward rule on or after 1 July 2014 the bring forward cap is $540,000 ($180,000 per annum x 3 years).

But once you've used the old cap, you can’t simply supplement the amount to take it up to the new cap.

Assume Charlie made one of these bring forward after tax contributions of $450,000 before 1 July 2014. Now that Charlie has used that ‘bring forward’ rule he has effectively forfeited the newly available increase of $30,000 available each year under the new cap limits of $180,000 per year.  

Charlie has already made his maximum contributions for that threeyear period so he is now ineligible to make an additional $30,000 in 2014/15 and 2015/16 financial years.  

If Charlie mistakenly makes the extra contribution of $60,000 (2 x $30,000 increase for 2014/15 and 2015/16 financial years) this will be treated as excess non-concessional contributions.  

Charlie will then receive a nasty assessment from the ATO providing that the $60,000 excess will be taxed at 46.5%, creating a tax liability of $27,900.

Charlie would then have to complete a compulsory release authority for the excess amount to be released from the Fund.

For any help or advice on the new contributions caps, call Townsends Business & Corporate Lawyers on (02) 8296 6222.