Clarifying carry forward super contribution rules

In an October, 2019 column, you answered the question: “Am I entitled to contribute up to $100,000 as a non-concessional component, or just the difference between $1.6 million and your total super benefits (TSB) at June 30”. I have put this question to the superannuation section of the Australian Taxation Office on three separate occasions and spoke to three difference people. The ATO response was always the same i.e. even though your TSB may be below $1.6 million at the previous June 30, the amount of any additional contribution must not take the TSB above $1.6 million, or the excess will be subject to tax etc. I notice also the wording on the ATO website re TSBs has also been recently revised and no longer states the contributor as being “eligible for a non-concessional cap of $100,000” to, “eligible for a cap above zero". I have noticed other financial advisors on the radio also say that a $100,000 non-concessional cap would be allowed. So the problem is probably widespread and likely to create a lot of unnecessary angst and maybe even tax penalties. G.S.

You worried me for a while there but I checked with the ATO and a spokesperson confirmed there has been no change to the law, nor the ATO’s interpretation. The spokesperson also said that its call centre personnel stick to the same rule book.

Credit:Karl Hilzinger

Just to clarify those rules. A person aged under 65, or between 65 and 74 and able to meet the “40 hours within 30 days” work test, can contribute to super.

Firstly, they can make a $25,000 tax deductible or “concessional” (because there is a concessional rate of tax of just 15 per cent) contribution into a super fund in 2019-20. Don’t forget this also includes an employer’s contribution, usually 9.5 per cent of gross salary but sometimes higher.

Since 2018-19, you can carry forward unused deductible contributions, which can come in handy if you have just sold a property and have a whopping Capital Gains Tax liability.

Secondly, you can also make a non-deductible, “non-concessional” contribution (NCC) of up to four times the concessional cap i.e. 4 x $25,000 = $100,000. Those under 65 (but not the over 65s), and with total super benefits under $1.4 million as at the previous June 30, can “bring forward” three years’ worth of such contributions i.e. $300,000, covering this and the next two financial years.

Any NCC over $100,000 will trigger the three year bring forward time period. For example, if you contribute an NCC of, say $105,000 in 2019-20, this triggers the three year time period, meaning you can only contribute another $195,000 over 2019-20, 2020-21 and 2021-22.

If you contribute the full $300,000, you should not make a further NCC before July 1, 2022, or face a mountain of paper and tax.

Not everyone can use the full $300,000 “bring forward” rule.

If your “total super benefits” are between $1.4 million and $1.5 million, you can only bring forward two years worth of maximum NCC i.e. $200,000. If your total lies between $1.5 million and $1.6 million, your maximum NCC drops to $100,000, and is nil for those lucky enough to have $1.6 million in super.

There is no rule that says you can only top up benefits of, say, $1.55 million with $50,000 to a maximum of $1.6 million.

There can be a trap here if you are not careful.

Let’s say you had $1.39 million in super at June 30, 2019.

You can theoretically bring forward a $300,000 NCC in 2019-20 but can only afford $200,000, while hoping for another $100,000 from an asset sale in August.

However, by June 30, 2020, your super fund, despite not having had a terribly good year following five months of floods in the eastern states, has managed to crawl up to $1.61 million by June 30, 2020. Your freedom to make that $100,000 non-concessional has disappeared.

The lesson is that, if your benefits are near the $1.4 million to $1.6 million range – and don’t we all wish they were – your "bring forward" choices can change from June to June.

How do you defer the tax liability after selling one investment property with capital gains being $220,000, and place the money into another property? Does all money have to go into the new property or can you keep some out to use now? How do I pay when I sell the new property, e.g. $220,000 plus $360,000 = $580,000 capital gains on the new property when sold? Half to be put into the tax return for that year when the final property is sold? R.S.

If you are thinking of a recent comment in this column about deferring CGT when a property was sold, it was only mentioned in the context that the sale might have been classified as an involuntary disposal where a property may be lost, destroyed or compulsorily acquired.

If you are simply selling a property and reinvesting in another there are only limited opportunities to defer CGT. For example, where a strata title is converted, or a person, or a partnership or a trustee, transfer an asset to a wholly owned company, or related companies transfer an asset between them.

More generally, CGT can be deferred where a small business restructures or replaces an asset, or there is a relationship breakdown, or a scrip-for-scrip takeover or a demerger.

Even if you think you have a case to defer CGT, don’t buy another property without confirming your belief with a tax accountant.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00. All letters answered.

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