By Anthony Cullen
Senior SMSF Technical Specialist

The long-awaited change

In May 2020 the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 was introduced to the House of Representatives. The purpose of this Bill was to increase the age, from under 65 to under 67, in which a superannuation member may potentially be able to utilise the ‘bring forward’ rule when it came to non-concessional contributions. The intent was for these changes to coincide with an increase in the work test age from 65 to 67 that took effect from 1 July 2020.

On 17 June 2021 we finally saw passage of the Bill pass through the Senate. However, due to amendments made by Pauline Hanson’s One Nation Party (PHONP), the Bill needed to go back to the House of Representatives.  Thankfully, the House sat late on that same day and accepted the amendment without further changes.  The Bill received Royal Assent on Tuesday 22 June 2021 and is now law.

Devil’s advocate

It has always been discussed, and accepted by all, that the changes to the law will be applicable from 1 July 2020.  This is based on the drafting of the Bill stating an application date of 1 July 2020 in Schedule 1, paragraph 2. There is a nuance in the Bill, however, that also states at paragraph 2 (Commencement), that commencement is ‘the first 1 January, 1 April, 1 July or 1 October to occur after the day the Act receives Royal Assent’. Given Royal Assent has only just occurred this would mean 1 July 2021.

How do we reconcile the two dates?  That question remains unanswered and outstanding, at the time of writing. We are aware that the question has been put to the ATO and we hope to receive a response via their website in the coming days.

The reason the question needs to be addressed is, what do we tell our clients that may have already jumped the gun and made non-concessional contributions in the hope the changes would get passed later and applied form 1 July 2020?  

Have these clients potentially put themselves in a position of having an excess non-concessional contribution?  One would hope not, but the application date of 1 July 2020 is only relevant once the Bill receives Royal Assent.  So, we may end up relying on the ATO’s interpretation of the Bill.

Worst case scenario, an excess contribution may be recorded by the ATO. If it comes to this, you will need to wait to receive the excess determination and respond accordingly before action can be taken.  Best case scenario is the intent of the change is recognised and any contributions made prior to Royal Assent being received are measured against the increased aged.

Timing of triggering the bring forward rule

Let’s assume once Royal Assent is received there are no issues with triggering the bring forward rule at any time in the 2021 financial year as proposed.  It is worth considering whether triggering the bring forward rule should occur this financial year or next (or even later).  Triggering the bring forward rule this year will lock a member into the thresholds and caps as they currently are.  Subject to their Total Super Balance (TSB), this could potentially be up to three years of contributions equaling $300,000. Whereas, next financial year, this could be as much as $330,000.  Before deciding you will need to have a reasonable idea as to what your TSB will be as at 30 June 2021.  The last thing you want to do is hold out, only to find you have exceeded a threshold that limits your ability to make further contributions.

With proposed changes to the work test coming out of this year’s budget, that further increase the ability of those 67 – 74 to utilise the bring forward rule, does this reduce the urgency to make the contributions and potentially trigger the bring forward rule this year? 

Pauline Hanson’s One Nation amendments

PHONP introduced three amendments to the Bill, of which two were accepted.  The first is to remove excess contribution charges for those who may exceed the concessional cap in a financial year. These changes are set to apply for excess contributions in a given year, starting from 1 July 2021.

The second is to allow for members who have previously accessed their superannuation benefits, via the COVID 19 early release measures in either the 2020 and/or 2021 financial year, the ability to recontribute them back to super as a tax-free contribution and not count towards their non-concessional cap.  There are further criteria to this measure that will also need to be considered before making the contribution and it will only be available from 1 July 2021 – 30 June 2030.  However, an approved form (that is not available yet) will need to accompany the contribution, so the ability to utilise the measure may be delayed for a short period of time.

It was a long time coming, but the changes got there in the end.  For those that wish to act this financial year there is little time to do so.  For cash contributions to be recognised as received this financial year, they must be received in the superfund’s bank account no later than 30 June.