What is the bring-forward rule and how does it work?

One way of maximising your superannuation contributions and boosting your account balance could be to use the ‘bring-forward rule’. We explain how this rule works and who is eligible to use it.

What is the bring-forward rule?

According to the Australian Taxation Office (ATO), the bring-forward rule allows those under 65 years old to make up to three years worth of non-concessional (after-tax) contributions to their super in a single income year.

This means you can put up to $300,000 – or three times the current $100,000 annual non-concessional contributions cap – into your super in one financial year without having to pay extra tax, the ATO says.

Amounts over the non-concessional cap are taxed at 47% for the 2020–21 financial year. Essentially, those who use the rule are ‘bringing forward’ their next two years of caps into the current year.

How does the bring-forward rule work?

The number of future-year caps you’re entitled to bring forward will depend on what your total super balance is at the end of the previous financial year.

The ATO says your total super balance must be less than the general transfer balance cap ($1.6 million from 2017–2018) with the ability to make a contribution greater than the annual non-concessional contribution cap ($100,000).

In other words, you must have a total super balance of less than $1.5 million to use the bring-forward rule.

More specifically, the ATO states that from 1 July 2017, your total super balance will need to be $1.4 million or less on 30 June for you to be able to bring forward your next two years of caps.

This would allow you to make a total of three years worth of after-tax contributions (or $300,000) in a single financial year.

If your balance is between $1.4 million and $1.5 million, the ATO says you can make a total of two years worth of contributions (or $200,000) in one income year.

But if you have over $1.5 million in super, the ATO says you won’t be entitled to use the bring-forward rule and will only be entitled to make non-concessional contributions up to the annual cap ($100,000).

Finally, bear in mind the ATO’s advice that if your total super balance is $1.6 million or more, your annual non-concessional cap will be zero.
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Source: ATO for 2017–2018 bring-forward period onwards

The bring-forward rule is automatically triggered as soon as you make a non-concessional contribution that exceeds the annual cap. For example, if you contributed $150,000 as a non-concessional contribution in the 2020–2021 financial year, this would be $50,000 over the annual cap.

If you’re eligible, this contribution would trigger the bring-forward rule, meaning that you could make further total contributions of up to $150,000 over the 2021-2022 and 2022-23 financial years, depending on what your total super balance was on 30 June of the previous financial year.

Who is eligible to use the bring-forward rule?

Whether you can use the bring-forward rule depends on two factors: your total super balance and your age.

As previously mentioned, the bring-forward rule is only available to those with under $1.5 million in super, and you can only make full use of it if your balance is $1.4 million or less.

The ATO says you must be under 65 years old for at least one day during the triggering financial year (the first year you use the bring-forward rule). The Federal Government has promised to extend the bring-forward rule to those aged under 67. However, this has not been legislated yet.

Keep in mind that as soon as you turn 67 years old, you will need to satisfy the work test (work at least 40 hours over 30 consecutive days) before you can make any voluntary super contributions. This applies from the 2020–2021 financial year onwards.

If you’re considering making non-concessional contributions over your annual cap, you may want to seek personal financial advice. This may be particularly helpful if you are approaching 65 years old or if your total super balance is nearing $1.6 million.

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