Maximising your super contributions

Bruce Brammall, 17 April, 2019, Eureka Report

SUMMARY: Don’t miss the opportunity to make bigger NCCs to your super fund by misunderstanding the rules. Here’s what you need to know.

Getting money into super has become a great deal harder in recent years, with various layers of caps complicating one’s ability to contribute.

There have been new caps in some areas and reduced caps in others.

While we can bemoan those (and the potential loss of franking credits), that’s for another time.

What is important is that you understand the rules as they currently stand. And make the most of the potential opportunities.

One of which is to maximise your ability to make non-concessional contributions, at this time of year.

A point that is not universally understood is that your ability to make non-concessional contributions is not based on your superannuation balance as of the date that you make the contribution. Particularly if you’re getting into the “restricted zone” above $1.4m in your “total superannuation balance” (or TSB).

It’s actually based on your TSB as at the end of the previous financial year. For those looking now, we’re talking about your balance as at 30 June 2018.

Why is this important?

Because you might have had some growth in the value of your investments and potentially put in some concessional contributions during the months to this point of the financial year.

Simply, if you’ve had a bit of growth – which the average self-managed superannuation fund should have – then when it comes to making decisions about whether or not to contribute, your current balance is irrelevant. It’s your balance on 30 June last year that counts.

As an example. A couple recently walked in. They both looked to have balances of perhaps-a-little-over, perhaps-a-little-under, the $1.6m TSB.

On the face of it, it looked like the husband was sitting a little over $1.6m and the wife was sitting, perhaps, a little under $1.6m.

That was, roughly, at the end of March, 2019.

Thankfully, that’s not the date that counts, when it comes to making non-concessional contributions (NCCs).

Further investigation revealed that, as of 30 June, 2018, the husband, indeed, had a balance over $1.6m. Only just, sadly.

But the wife’s TSB was far more interesting. She had two superannuation accounts with the same industry fund. The first was a defined benefit fund and the second was a regular accumulation account.

Her TSB, currently, looked to be sitting at a little under $1.6m. So, under the current rules, she might have been limited to a single NCC of $100,000.

But investigations revealed that her combined balances for each fund on 30 June was actually sitting below $1.4m. During the current year to date, the defined benefit portion had grown, as they do, by a formula unique to the fund. And the accumulation account had also grown, via investment, and contributions to the fund.

So while her current TSB was sitting at a little over $1.5m, her TSB as at 30 June, 2018, was sitting at about $1.38m.

Your TSB is important for several reasons. One of those is because it determines your eligibility to make NCCs.

If you have less than $1.4m as a TSB, then you might qualify to use the three-year pull-forward rules for NCCs. (There are other conditions that you need to meet, including being under age 65 at any point during the financial year.)

If you are under $1.4m, then you might be eligible to put in up to $300,000. Between $1.4m and $1.5m, as much as $200,000. If you are between $1.5m and $1.6m, then you might be able to a once-off payment of $100,000.

If your TSB is over $1.6m, as at 3 June, 2018, then you won’t be able to make any NCCs.

In a table format, see the following:

This might be really important in the current financial year, given middling to okay growth in investment-asset values.

For example, your current TSB, as at today, might be $1.55m. However, this might have included some solid investment returns, plus the inclusion of your $25,000 concessional contributions.

To get from a balance of $1.39 million on 30 June to something over $1.5 million now, all that would require would you to have put in the $25,000 concessional contribution early in the financial year, with an investment return for the financial year-to-date, of only 6.1%.

The difference between being a little bit under $1.4m and a little over $1.5m is the difference between putting an extra $200,000 in NCCs into your fund.

So, how do you figure this out?

What is your TSB as of 30 June, 2018?

This is what you need to find out. And it includes all of your superannuation, from all sources.

If you have a SMSF, your SMSF taxation accounts should provide you with your balance for 30 June, 2018. Your accountant should be able to provide you with that, or it should be in the accounts that have already been completed.

If you have other funds (you might have other funds, including industry funds that you have held for insurance, or defined-benefit funds), you will also need to find out your super balances there. Call them and ask for your 30 June balance. If everything is not in the same account (whether SMSF or APRA-regulated fund), then you will need to find out those balances and add them together to get your TSB.

If you have any doubt, bring your financial adviser into play, who will hopefully be able to do the research for you.

If you have any doubts, you need to seek advice. This might be to determine your TSB, or your ability to make NCCs from this point.

But it might become even more critical in the lead-up to the end of this financial year, if you’re bordering on a limit.

In certain circumstances, it might also be wise to take a pension this financial year, so that your balance on 30 June 2019 is under the limits, to allow you to to make a contribution next financial year.

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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au .