One of the final pieces to the contribution jigsaw is now in place for 1 July 2021, with the half-yearly AWOTE figure for November 2020 being published, confirming indexation of the concessional contribution (CC) cap from $25,000 to $27,500.
Indexation of the CC cap applies in $2,500 increments and is measured against the base figure in November 2016 (as applied from 1 July 2017) to determine whether indexation will occur for the following financial year.
The AWOTE figure released of 1711.60, means the calculation is as follows:
= $25,000 x (1711.6 / 1533.4) = $27,905
As this amount is greater than $27,500, the CC cap increases to $27,500.
NCCs to rise as well…
Importantly, this change will also result in an increase of the non-concessional contribution (NCC) cap, as it is linked by the tax laws (s.292-85(2) of the ITAA 1997) as four (4) times the CC cap.
This means that the NCC cap increases to $110,000 per year, with the ability to apply the bring-forward up to $330,000.
However, this is subject to both age and a member’s TSB – both which are also in a period of change at this time, with increases of the contribution age to 67 without requiring a ‘work test’, and the indexation of the transfer balance cap (TBC) from $1.6 million to $1.7 million from 1 July 2021.
The following diagram explains how a member’s total super balance (TSB) will interact with the increase in the NCC cap:
|Threshold||Allowable NCCs & bring forward|
|$1.70m or more||Not eligible|
|$1.59m to less than $1.70m||$110,000|
|$1.48m to less than $1.59m||$220,000|
|Less than $1.48m||$330,000|
Other AWOTE indexation changes
Amongst other changes, the increase in the AWOTE figure also sees the indexation of both the CGT cap and untaxed plan cap to $1,615,000 (from $1,565,000), along with an increased in the low rate cap amount from $215,000 to $225,000.
Want to find out more?
Join us at the SMSF Virtual Day 2021
In this session, Tim will be taking a practical look at what this increase to the contribution caps actually means from a strategic standpoint and will be providing some important case studies / examples in what you can be looking to implement with your SMSF clients.