Indexation brings changes to superannuation caps from 1 July 2021
Contribution Caps
The concessional contribution cap, which on 1 July 2017 was set at $25,000, is scheduled to increase to $27,500 from 1 July 2021. The
concessional contribution cap is indexed each year by average weekly ordinary time earnings (AWOTE). However, there has been no change to
the cap limit until now because it is rounded to the nearest $2,500.
As a result of the concessional cap increase, the non-concessional cap automatically increases to $110,000 from 1 July 2021, as it is set at 4 times the concessional contributions cap.
Similarly, the maximum amount that can be contributed under the “bring forward rule” (which enables up to 3 years of non-concessional contributions to be made in one year, for people aged under 65 at the beginning of the financial year), has increased to $330,000.
Note also that legislation is before Parliament which will extend the age at which the bring forward rule can be utilised to anyone aged
under 67 at the beginning of the relevant financial year. However, that legislation has not yet passed the Senate.
Total Superannuation Balance threshold increases
The Total Superannuation Balance (TSB) refers to the amount that a person has in superannuation, across all funds. For example, they may
have a balance in a self-managed superannuation fund (SMSF) of $1.2 million, and $300,000 in an industry fund. In this case, that person’s
TSB is $1.5 million.
Previously, a person with a TSB of $1.6 million had a non-concessional contribution cap of nil, which effectively precluded them from making non-concessional contributions. From 1 July 2021, that threshold will increase to $1.7 million, potentially enabling more people to be able to make non-concessional contributions.
Transfer Balance Cap
The Transfer Balance Cap (TBC) limits the amount that a person can transfer into a retirement phase pension. This cap will also increase
from 1 July 2021 due to indexation, from $1.6 million to $1.7 million.
The $100,000 increase in the cap will only apply in full to those that have not yet transferred anything to a retirement phase pension. For
those that have used some of their TBC, they may be entitled to some of that $100,000 increase, as explained further below.
Some implications of the cap changes
The “bring forward rule”
If a person has triggered the bring forward rule before 1 July 2021, and he or she is still in that bring forward period, they will still
have a cap of $300,000 during that bring forward period. In other words, the bring forward limit is based on the non-concessional cap that
applied when the bring forward rule was triggered.
For this reason, people who have the capacity to contribute large amounts of non-concessional contributions could consider not triggering the bring forward rule in the 20/21 year. By delaying any triggering of the bring forward rule until 1 July 2021, you could potentially increase the available non-concessional cap by $30,000. Of course, all circumstances are different, so if this is something that may apply to you, please seek advice from your accountant or financial adviser.
Transfer Balance Cap
If a person had transferred something less than $1.6 million to a retirement phase pension before 1 July 2021, they may now be able to
transfer more into their pension. Such a person is able to access a proportion of that $100,000 increase in the general TBC. For example,
if the person had commenced a retirement phase pension of $1.2 million on 1 July 2020, they would have used 75% of the general TBC, and
have an unused portion of 25%. With the increase of the general TBC by $100,000 to $1.7 million, that individual’s personal TBC would now
be $1,625,000 – that increase of $25,000 being 25% of the increase in the general TBC – the increase mirroring the unused portion of the
cap.
For more information about the changes, please get in touch with our office on 1300 363 866.
McConachie Stedman Financial Planning is an Authorised Representative of Wealth Management Matters Pty Ltd ABN 34 612 767 807 | AFSL 491619