SMSF advisers should give consideration to recommendations around when to trigger bring forward contributions as the amounts available may change next year as a result of indexation, according to an SMSF technical expert.
Heffron managing director Meg Heffron it was highly likely there would be changes to contribution caps in the next year as they were not fixed rates.
“We look at the caps for non-concessional contributions (NCC) and bring forward contributions as we currently see them but none of them are hard coded,” Heffron said during a presentation at the Heffron Super Intensive Day.
She noted the bring forward contribution amounts, in relation to an SMSF’s Total Super Balance (TSB), were based on multiples of the annual NCC cap of $100K and if the latter increased, so did the amounts allowed under bring forward rules.
At the same time, the TSB amounts below $1.6 million that allowed the use of a bring forward contribution were based off the Transfer Balance Cap (TBC) minus a multiple of the annual NCC cap, with Heffron pointing out these could also change as a result of indexation.
“We could be looking at a situation as early as 1 July 2021 when some of those figures change as the general TBC is indexed in line with inflation.
“While this fell quite dramatically between March and June quarters it bounced back in the September quarter so it is entirely possible this will be indexed by 1 July next year.
Heffron said the NCC cap was based on a four time multiple of the concessional contribution (CC) cap, which in turn was linked to average weekly earning rates which also rose in May and so indexation was likely to take place.
She pointed out that if indexation took place it could create a new TSB and bring forward contribution thresholds and advisers needed to be aware of the changes.
“If the TBC does not go up but the CC does, and therefore the NCC will also increase, we may have a weird situation where people with more than $1.6 million in their TSB still have a zero cap for NCCs.
“A three year bring forward contribution will get more bang for buck reaching $330,000 instead of $300,000 but a member would need to have a TSB that is even lower than what we are used to at $1.38 million instead of $1.4 million. On the other hand, if the TBC went up from $1.6 million to $1.7 million all those thresholds would increase by $100,000.
“So, when advising clients this year and next year there are some quirky things to consider and think carefully about triggering bring forwards this year because you will be locking in $300,000 but next year it might be $330,000
“The real challenge with this year is what will be the threshold? For someone who wants to trigger a bring forward contribution next year will they be aiming for $1.4 million, or $1.38 million, or $1.48 million?
“We won’t know for a bit, so it makes bring forward contributions slightly tricky but we should know by February 2021 what the state of play is.”
Last week, SuperConcepts SMSF specialist Anthony Cullen recommended that advisers do not consider indexation as the only factor that may impact an SMSF contribution strategy and to keep an eye on other possible changes.
