Question 1
I have received many questions about using non-concessional (after tax) “bring-forward” rules in relation to contributing to super.
The two questions below, which I have answered together, are typical examples:
- How many times can I use the bring-forward rule in one lifetime. I did this in 2019.
- Can you use the bring-forward more then once? If I contribute $360,000 this year to my fund, then can I contribute another $360,000 in three years time?
There is no limit on how many times you can use the bring-forward rule.
It is in relation to how much after tax non-concessional contributions you can make to super.
Because super provides so many tax advantages, the federal government limits how much you can contribute.
The ‘normal’ annual non-concessional cap is $120,000. This is based on a financial year.
Under the bring-forward rule, you can make three years worth of contributions in one go, i.e. up to $360,000. However, you then have to wait under three years before you can make more non-concessional contributions.
Or you could complete your bring-forward contributions in year two or three if you didn’t go up to the $360,000 cap.
For example, let’s say you make a $200,000 contribution in year one, then in years two and three you can still make up to a total of $160,000 in total non-concessional contributions to bring you up to the $360,000 cap.
In year four you can then start all over again (it goes back to year one).
The only caveat to this is in relation to your total super balance. As stated above, because super is so generous, your total super balance must be below certain limits for you to be eligible to use the bring-forward rule.
While the amount you can contribute is not indexing next financial year, the total super balance amount is. Please see the below tables.
Question 2
Hi Craig. Love reading your Q&A financial segment.
I tuned 75 in December 2024. My wife is 70 years old. We both have a Choice Pension Income account.
Mine is $430,000, of which $221,000 is a taxable component. My wife’s $1,365,000, of which $321,000 is a taxable component.
Between us we also have about $360,000 in savings. I also have a small shares portfolio of about $90,000. We fully own our house and we are self-funded retirees.
We are reciprocal reversionary beneficiaries. Neither of us have any dependants and we have a will, but it needs updating.
We are seeking easier and better ways of restructuring our current pension accounts that will help reduce, or even better, eliminate any payable taxes on our accounts that are inherited by our adult children upon our deaths.
Your thoughts will be appreciated. Thank you. PP.
Hi PP,
There are no death taxes in Australia, so the funds outside of super won’t be taxed. If your shares have made capital gains there may be tax once the end-beneficiary eventually sells them.
With your pension accounts, the taxable component will be taxed at 17 per cent (includes Medicare) when passing to adult children.
What normally happens is that when one spouse dies and leaves the funds to their partner, then this is received all tax free. It’s when the last spouse dies and the super funds pass to adult children (or other relatives) that this tax is applied.
Your taxable component is 51.4 per cent of your account balance and your wife’s is 23.5 per cent. Any interest earned is then added to the account in those proportions.
Similarly, any income or lump sum payments are also taken out in those proportions. i.e. all withdrawals have to be drawn out proportionally between the tax free and taxable components.
As you are now over 75, you can no longer re-contribute after-tax non-concessional contributions to super. This means you can’t adopt the popular cash out and re-contribution strategy that I covered here.
Your wife could look at using this strategy in conjunction with the bring-forward rules. i.e. cash out $360,000 and then re-contribute them back into super. But drawing out $360,000 would only convert about $84,660 of taxable component to tax-free given the proportional rules mentioned above.
Reducing future estate taxes is just one objective that needs to be considered.
You could easily eliminate paying this tax by simply withdrawing all your funds from super now and investing them elsewhere. However, superannuation provides so many other benefits such as tax-free earnings and payments, regular income payments and access to a wide range of professionally managed investments. Therefore, these need to be considered before withdrawing your funds.
Another thing to consider is how much are you drawing out of your pensions, and as a result, are the balances going up or down?
If the balances are getting smaller, then this may be far less of an issue in years to come, but the opposite is also true.
You may also need to take a large lump sum out to pay for aged care in the future, and this again would reduce these taxes.
When the last remaining spouse becomes unwell, then at that point the super could simply be cashed out into a bank account. However, if they die suddenly then this is not always possible.
When one of you passes, it would be advisable to receive further advice at that time.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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