Contributions Strategies Prior to 1 July 2017

If you are aged under 65 on 1 July 2016, you may maximise your contributions by contributing up to $540,000 during the 2017 Financial Year.

Your eligibility to contribute $540,000 up to 30 June 2017 is subject to the following restrictions:

• You must be aged under 65 at the time the contribution is made. If you are aged over 65, you must pass the work test in the 2017 Financial Year;
• You did not trigger the ‘3-Year Bring Forward Rule’ during the 2015 or 2016 Financial Year.

If you trigger the 3-Year bring forward rule during the 2017 Financial Year (by contributing more than $180,000) but do not use it fully (i.e. you did not contribute $540,000 by 30 June 2017), transitional arrangements will apply to the bring forward cap. Detailed information on the Transitional rules can be found here.

Effect of timing of contributions:

The timing of the Non-Concessional Contributions for the 2017 Financial Year can therefore make a difference in terms of how much you can ultimately contribute as Non-Concessional Contributions to your SMSF.

An example:

Barney is 61 and wishes to make maximum Non-Concessional Contributions into his SMSF. In addition, Barney did not trigger the 3-year Bring Forward Rule in 2015 or 2016 Financial Years (i.e. his total Non-Concessional Contributions in 2015 were less than $180,000 AND his total Non-Concessional Contributions in 2016 were also less than $180,000).

In Example 1, Barney contributes $540,000 under the 3-year Bring Forward Rule in May 2017. This means that Barney cannot contribute again until 1 July 2019 (i.e. the 2020 Financial Year). Assuming Barney’s Total Superannuation Balance at 30 June 2019 is less than $1.4 million and given Barney is under 65 on 1 July 2019, he can use the 3-year Bring Forward Rule in the 2020 Financial year and contribute up to $300,000. Therefore, his total contributions will be $840,000.

In Example 2, Barney triggers the 3-Year Bring Forward Rule during the 2017 Financial Year by contributing $300,000 but does not use it fully (i.e. contributes less than $540,000). Transitional Arrangements will apply and Barney can therefore only make a further $80,000 Non-Concessional Contributions (calculated as $180,000 cap for 2017 Financial Year plus $100,000 cap for 2018 Financial Year and $100,000 cap for 2019). On 1 July 2019, his 3 year Bring Forward cap resets again allowing him to make $300,000 as Non-Concessional Contributions. This brings his total contributions to $680,000.

In Example 3, Barney only contributes $180,000 during the 2017 Financial Year. He does not trigger the Bring Forward Rule. In 2018 Financial Year, given the reduced Non-Concessional Contributions cap limit, his maximum Non-Concessional Contribution under the 3-Year Bring Forward rule is only $300,000 (assuming his Total Superannuation Balance is less than $1.4 million on 30 June 2017). He cannot make further contributions until the 2021 Financial Year. This brings his total contributions to $480,000.

If you are aged between 65 and 74 during the 2017 Financial Year and pass the work test, you may contribute up to $180,000 until 30 June 2017. The "Work Test" requires that you are "Gainfully Employed" for at least 40 hours in a period of not more than 30 consecutive days in the 2017 Financial Year.

1. Contributions Splitting

Contributions Splitting allows you to split Concessional Contributions between you and your spouse, thereby increasing your spouses’ super balance and reducing yours.

We caution that only 85% of the Concessional Contributions made by you during the 2017 Financial Year can be split with your spouse. As a result, this strategy only works if both you and your spouse are members of the same SMSF and only one of you will have a Total Superannuation Balance slightly above $1.6 million on 30 June 2017.

There are also other restrictions on the timing of the Concessional Contributions and age of your spouse. For more details on implementing Contributions Splitting, please click here.

2. Contributions Reserving Strategy

The Contributions Reserving Strategy allows contributions made in June to be allocated to your Member account in the next Financial Year, i.e. contributions made in June 2017 will be placed into a Contributions Reserve account before being allocated to your member account in 2018 Financial Year. This means that the Contributions reserve amount is not counted as part of your Total Superannuation Balance at 30 June 2017.

It is important to note that the Contributions Reserve amount will count towards your Concessional Contributions Cap for the next Financial Year (i.e. $25,000 for 2018 Financial Year). Therefore, consideration should be given to the Concessional Contributions Cap and other normal Contributions Rules (e.g. age restrictions, work test requirements for members aged over 65~74 etc.) applicable. In other words, you may only allocate up to $25,000 (the 2018 Concessional Contribution cap) to the Contributions Reserve in June 2017.

For more details on Contributions Reserving Strategy, please click here.

3. Rebalancing Strategy

A Rebalancing Strategy allows you to withdraw large amounts from your portion of the SMSF and then recontribute the balance to another member within the SMSF.

Eligibility Criteria:

• In order to undertake a Rebalancing Strategy, you must firstly satisfy a condition of release to withdraw your Super Benefits from the SMSF (e.g. aged over 65 or between preservation age ~ 64 AND retired). More details on accessing your Super benefit can be found here. We also caution that if the withdrawal occurs before the member turns age 60, some withdrawals tax might be incurred in the member’s personal tax return.
• The other member (i.e. the receiving member) must be eligible to contribute to the SMSF. The applicable contributions rules and caps can be found here.

Implementing the Strategy:

If you satisfy the above criteria, the Rebalancing Strategy can be implemented as follows:

(1) Your Super Benefit must be physically transferred from the SMSF’s bank account to a Personal Bank Account.

(2) The amount must in turn be transferred back to the SMSF’s bank account as a Contributions for the other member on the same day or later.

It is important to understand that the member’s benefit must be physically transferred to a Personal Bank Account and in turn transferred back to the SMSF’s bank account to implement the strategy. An accounting entry is not sufficient.

Results:

By implementing the Rebalancing Strategy, your member benefit will be reduced and the other Member’s benefit increased, i.e. your proportional entitlements in the SMSF will be affected.