SMSF Bring Forward Rule 2021
What is the SMSF bring forward rule?
This rule allows those under the age of sixty-five to make up to three years worth of non-concessional (after-tax) contributions to their super in a single income year. According to the ATO, you can put up to three times the current $100,000 annual non-concessional contributions cap into your super in one financial year without having to pay extra tax. However, amounts over the non-concessional cap are taxed at 47% for the 2020–21 financial year. Essentially, those who implement the rule are ‘bringing forward’ their next two years of caps into the current year.
An employee can make an agreement called Salary Sacrifice. In this, the employee agrees to receive less take-home income from the employer and in return they earn benefits. These benefits are paid out of their pre-tax salary. Benefits can include goods and services like a car, a laptop or contributions to their superannuation account.
How does it work?
For example, if a person’s income was $80,000 per year before tax, they may choose to receive $70,000 as income and sacrifice $10,000 into their super. They only pay income tax on the reduced salary which means their taxable income would be reduced to $70,000.
Who is eligible to use the SMSF bring forward rule?
Whether one can use the SMSF bring forward rule or not depends on two factors: their total super balance and their age. This is exclusively available to those with under $1.5 million in the super, and you can only make full use of it if their balance is $1.4 million or less. The ATO says they must be under 65 years old for at least one day during the triggering financial year. The Federal Government has promised to extend the bring-forward rule to those aged under 67. However, this has not been legislated yet.
Once you turn 67 years old, you will need to satisfy the work test before you can make super contributions. This will be applied from the 2020–2021 financial year onward.
Super withdrawal options:
You can receive your super as a super income stream, super lump sum or a combination of both. Check with your fund to find out what options are available to you. The withdrawal option that you choose affects the amount of tax you pay and the money you have for your retirement.
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