SMSF members may inadvertently trigger bring-forward arrangements when making large non-concessional contributions (NCC) and will be unable to turn them off even if the arrangements are not needed, an SMSF technical expert has warned.
Heffron head of SMSF technical and education services Lyn Formica said people were starting to fall into traps regarding bring-forward arrangements and were overlooking the fact the arrangements commenced when certain conditions were met either accidentally or on purpose.
“The main trap is that bring-forward mode is an automatic thing. We don’t choose it and we don’t make an election to use it,” Formica said during a recent webinar.
“If we meet the age criteria, it was 65 and now it’s 67, and if NCC contributions allocated to the member are more than their standard cap, and that person is not part way through a bring-forward arrangement, they will automatically fall into one.
“You don’t get to say if you prefer to not trigger bring forward in that year or if you take the extra contribution as an excess and trigger it next year.”
The NCC bring-forward rules were based on the age of an SMSF member, their total super balance (TSB), the general transfer balance cap and general NCC cap and a bring-forward arrangement could be triggered at any time where a member was under age 67 and exceeded their NCC cap, she said.
She also pointed out that bring-forward amounts were fixed and not subject to change once the arrangement had commenced and this would also exclude any changes due to indexation.
“We can’t choose the amount under a bring-forward arrangement as that is a function of a member’s TSB at the previous 30 June. Whatever the TSB is at that date will determine the bring-forward amount, and if it is a two or three-year period and two or three times the general NCC cap,” she said.
“With the changeover from the $100,000 standard NCC cap to $110,000, once I trigger bring-forward mode I will lock in the amount for that period.
“So if you have clients who triggered bring-forward mode in 2021 and were entitled to a $300,000 NCC cap, they will not get the benefit that the $100,000 cap grew to $110,000.
“Even if they don’t use all the bring-forward amount in 2021, they still don’t get the benefit of indexation, so they are stuck with the $300,000 limit as it is not adjusted part way through.”
