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Maximising your super contributions

Getting money into super has become a great deal harder in recent years, with various layers of caps complicating one's ability to contribute. Adding complexity to the issue, there have been new caps in some areas and reduced caps in others.

While we can debate the raft of super changes (and the potential loss of franking credits), that discussion is for another time. 

What is important is that you understand the super rules as they currently stand, so you can make the most of the potential opportunities - one of which is to maximise your ability to make non-concessional contributions at end of financial year.

A point that is not universally understood is that your ability to make non-concessional (after-tax) 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 $1.4 million in your Total Superannuation Balance (or TSB).

It's actually based on your TSB as at the end of the previous financial year. If you're looking to make non-concessional contributions now, we're talking about your balance as of 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 10 months to this point of the financial year.

Simply, if you've had some 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.

Take our hypothetical married couple as an example. They both looked to have balances of perhaps-a-little-over, perhaps-a-little-under the $1.6 million TSB cap.

On the surface, it looked like the husband was sitting a little over $1.6 million and the wife was sitting perhaps a little under $1.6 million.That was roughly at the end of March 2019, but 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 of over $1.6 million. 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 $1.6 million. So, under the current rules, she might have been limited to a single non-concessional contribution of $100,000.

But investigations revealed that her combined balances for each fund on 30 June 2018 were actually sitting below $1.4 million. 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 $1.5 million, her TSB as of 30 June 2018 was about $1.38 million.

Your TSB is important for several reasons.

One of those is because it determines your eligibility to make non-concessional contributions. If you have less than $1.4 million as a TSB, then you might qualify to use the three-year bring-forward rules for non-concessional contributions. (There are other conditions that you need to meet, including being under age 65 at any point during the financial year.)

The table below outlines the allowable non-concessional contributions, using the bring-forward rule:

  Total Super Balance at 30/06/2018 Maximum contributions  
  Less than $1.4 million $300,000  
  $1.4 million - $1.5 million $200,000  
  $1.5 million - $1.6 million $100,000  
  Over $1.6 million $0  

This might be really important in the current financial year, given 'satisfactory' growth in investment-asset values.

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

To move from a balance of $1.39 million on 30 June 2018 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 per cent.

The difference between being a little bit under $1.4 million and a little over $1.5 million is the difference between putting an extra $200,000 in non-concessional contributions into your fund.

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 an SMSF, your fund tax accounts should provide you with your balance for 30 June 2018. Your SMSF 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 (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 the fund trustees and ask for your 30 June 2018 balance.

If everything is not in the same account (whether an SMSF or an APRA-regulated fund), then you will need to find out those balances and add them together to get your TSB.

Lastly, if you have any doubts, it's best to seek professional financial advice to determine your TSB, or your ability to make non-concessional contributions.

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