Members who rush to use the three-year non-concessional contribution (NCC) bring-forward provision in 2020 may find themselves at a disadvantage, an SMSF technical expert has said.
SMSF Alliance principal David Busoli highlighted impending legislation affecting the NCC bring-forward provision, once in effect, would mean members who had turned 65 this year, but were cautious about exercising the provision, could be rewarded for their patience.
“Legislation has been tabled in the House of Representatives that will affect the optimum timing for such contributions. With the last sitting day for both houses of parliament being the 18 June it is quite possible that it will be passed and become law effective 1 July 2020,” Busoli said in a blog post on the SMSF Alliance website.
“Currently, the final year in which an individual can trigger the bring-forward rule is the year in which they turn 65. Under the new law, a member will be able to trigger the bring forward in the year they reach age 66 or age 67 (that is, when they are 65 or 66 on 1 July of the relevant year). A helpful, additional, change is that the ‘work test’ age will be increased from 65 to 67.”
He pointed out members aged 65 who decide to contribute $300,000 this year would be unable to benefit from the change once the legislation came into effect and could find themselves at a sizable disadvantage in terms of their future NCC eligibility.
“If only $100k is contributed this year, and $100k next year, [65-year-old members] will be eligible to make a further $300k the following year. Their patience could make a $200k difference to their non-concessional contribution eligibility,” he said.
He also warned members to keep their total super balance in mind when considering when to action their NCC bring-forward provision.
“The legislative change is only to the eligibility age and work test, not the total super balance restrictions,” he noted.
In February, Heffron senior SMSF specialist Alex Denham said deliberate breaches of the NCC cap in an effort to reduce the amount of tax paid by an individual would be targeted by the ATO, which is aware of the practice.
Last year, the ATO released a guidance note to alleviate concerns over excess NCC determinations issued to some SMSFs in error.
