3 Year Bring Forward Rule

If you are under age 65 at any time during a financial year you are permitted to bring forward two years' worth of Non Concessional Contributions.  This enables you to contribute any amount up to $450,000 in total over three years without exceeding the Contribution Limits.  This is known as the "3 Year Bring Forward Rule".  There is no requirement to elect to use the "3 Year Bring Forward Rule".  It is automatically triggered in the first financial year in which a Non Concessional Contribution exceeds the $150,000 limit, noting that you cannot exceed $450,000 in that year and the next 2 years.  The "3 Year Bring Forward Rule" resets at the expiration of the 3 year period, allowing the Member to continue making contributions to the SMSF.

A Planning Opportunity

As detailed above the "3 Year Bring Forward Rule" will only be available to an individual who is under 65 at any time during a financial year.  That is if you turn 65 during a financial year but were 64 on 1 July of that financial year the "3 Year Bring Forward Rule" can still apply.  This presents a Planning Opportunity for Members who are 64 on 1 July of a financial year and will be turning 65 in that year.  In this case a Member can trigger the "3 Year Bring Forward Rule" by making a Non Concessional Contribution above $150,000 at any time in the financial year in which they are turning 65.  This is the case even if the Member turns 65 later in the financial year the Non Concessional Contribution is made or in any of the next 2 years.  It is very important to understand that once a Member reaches 65, they can only make a Non Concessional Contribution if they satisfy a Work Test in the Financial Year in which the Contribution is made (for more on the Work Test click here).

An Example:

Barney is 64 on 1 July 2010 and turns 65 on 10 July 2010.  In August 2010 at age 65 Barney makes a Non Concessional Contributions to his SMSF totaling $200,000.  Barney will trigger the "3 Year Bring Forward Rule" because firstly he was under 65 on 1 July 2010 in the Financial Year the Non Concessional Contribution was made and secondly he made Non Concessional Contributions exceeding $150,000 in that year.  Therefore to remain within the "3 Year Bring Forward Rule" limit, Barney must ensure his Non Concessional Contributions for the 2011, 2012 and 2013 Financial Years do not exceed $450,000.  Given Barney has already made a Non Concessional Contribution of $200,000, his total Non-Concessional Contribution limit for the next 2 years should not exceed $250,000 (ie $450,000 less $200,000).  Remember Barney must still pass a Work Test for Non Concessional Contributions made after 65.  Consider some options available to Barney:

Note a

It is important to note that an SMSF Trustee cannot accept a single Non Concessional Contribution if it exceeds $150,000 and the SMSF Member is 65 or more at the time of the Non Concessional Contribution.  In this case to the extent that the Member was 64 on 1 July in the year the "3 Year Bring Forward Rule" was triggered, the Contribution made after 65 should simply be split into 2 or more Contributions not exceeding $150,000 (ensuring the total over 3 years does not exceed $450,000).  Therefore in the above example, Barney can still contribute say $200,000 in the 2011 financial year after he turns 65 but the contribution should be broken down into 2 separate contributions under $150,000 (eg $150,000 and $50,000).  The separate contributions can be made on the same day.