Juggling downsizer and other super contributions over EOFY

Here’s a case study with 5 super scenarios to help your clients maximise their non-concessional contributions (NCC) – and which one works best.

As the end of the financial year quickly approaches, it’s a good time to look at your clients' super strategies.

One of the most complex – but rewarding – parts of your role as an adviser is helping your clients minimise their tax liabilities and maximise their super contributions.

So, let’s see whether your clients are better off making downsizer and other non-concessional contributions this year or waiting until next financial year.

There’s nothing like a case study to bring your strategies to life. So, here’s a real-life example.

Tracey’s story | Juggling downsizer and NCC contributions after selling her home

Let’s look at Tracey, who’s turning 75 in December 2024.

• She downsized her home in April 2024 and has sale proceeds of $800k remaining. (Note: no CGT from the sale due to CGT principal home exemption)
• She meets the eligibility criteria for downsizer contributions.
• She wants to maximise her super contributions to increase her retirement savings tax effectively in the shortest possible time.
• Her TSB on 30 June 2023 was $1.4m.
• She hasn’t made any NCCs in the past.
  

So how much should Tracey contribute to downsizer and other NCCs? And should she contribute this financial year or wait until the next?

5 NCC super strategies…and which is best

1. General NCCs and downsizer this year, general NCCs next year

2. Bring forward this year and downsizer this year

3. Bring forward this year, downsizer next year

4. Bring forward next year and downsizer next year

5. General NCC this year, Bring forward and downsizer next year

Based on the structure of contributions and timing management, the results can vary significantly.

And the winner is…scenario 5, where Tracey makes general NCCs this year and then trigger the bring forward cap of $360k NCCs and make the downsizer contributions next year.

As Tracey’s home is sold in mid-April 2024, she can make a downsizer contribution either this FY or next FY (by mid-July 2024) if it is within the 90-day period from settlement.

The key takeaway is to facilitate the maximum amount of contributions over the shortest period, clients could consider limiting their NCCs this financial year to $110k, in other words, do not trigger the bring forward in this FY and delay the downsizer to the next FY, because if downsizer is made in the current FY it may increase the TSB on 30 June 24 to a level that would prevent her from maximising the bring forward cap.

Of course, every client’s circumstances are different, and some might prefer to make NCCs over a longer period.

4 factors that could influence your NCC client strategies

1. How old they are and how long they have left to make personal contributions or trigger the bring-forward rule.

2. How much they have in super (TSB) on 30 June of the previous financial year.

3. How much they want to contribute from non-super money and recontributions.

4. Whether the NCC cap will start to be indexed in the future.

Some things to remember about bring-forward rules

• The general NCC cap is increasing from $110k to $120k on 1 July 2024, due to indexation.
• This means the bring-forward cap is also increasing – from $330k to $360k.
• The bring-forward amount is restricted by the TSB of the previous FY. For example, if the TSB on 30 June 2024 is $1,810,000 (as in Scenario 3) the bring-forward cap is equal to the general NCC cap for 24/25 FY of $120k. But if the TSB on 30 June 2024 is $1,510,000 (as in Scenario 5) the bring forward cap is $360k – see the table below.
• The bring-forward rules are triggered when your client’s NCCs exceed the general NCC cap.
• The general NCC cap in FY23/24 is $110k. If bring forward is triggered in this FY the maximum NCC cap is $330k over three years. If bring forward is triggered in the FY24/25, the maximum NCC cap is $360k over a 3-year period from 1 July 2024.
• Even though Tracey can trigger the bring forward rule, as she turns 75 in December 2024, she will only have until 28 January 2025 to get the NCC contributions into super.

4 things you should know about downsizer contributions

1. You don’t need to worry about your client’s TSB.

2. The minimum age is 55 and there’s no upper limit. Downsizer contribution can be made after age 75, unlike NCC and bring forward contributions.

3. The proceeds usually need to be made into super within 90 days of settlement

4. You have one go at this contribution opportunity.