Since the initial announcement on 3 May 2016, the Government’s proposal to introduce a lifetime cap of $500k for non-concessional contributions, has caused much uncertainty and lack of confidence towards the superannuation system.
In response to the backlash surrounding this controversial measure, the government has now announced their decision to scrap the $500,000 lifetime after-tax non-concessional contributions cap. This is set to be replaced by a reduction to the existing annual non-concessional contributions cap from 1 July 2017, from $180,000 per year to $100,000 per year for individuals under the age of 65 with a 3 year bring-forward for those who have a superannuation balance of $1.6 million or less.
If your superannuation balance is above $1.6 million, you will no longer be eligible to make non-concessional contributions from 1 July 2017.
In light of these revised limits, there is much opportunity to review your contribution strategy to take advantage of the last year of the current contribution limits and maximise your after-tax contributions before 30 June 2017.
- Individuals under the age of 65 with a balance of $1.6 million or greater in their superannuation fund and wishing to contribute more should look to utilise the $540,000 bring-forward cap in the current year in order to maximise their superannuation balances, subject to the use of their bring-forward caps in previous years.
- Individuals under the age of 65 with a balance well below $1.6 million will have access to the bring-forward cap, and could utilise this subject to cash-flow. These individuals will post 1 July 2017 still have access to the $100,000 in non-concessional contributions every year with an ability to access the 3 year bring forward until such time that their balance reaches $1.6million.
- Where an individual does not fully utilise the $540,000 bring-forward cap before 30 June 2017, they will be subject to transitional arrangements where the remaining bring-forward amount will need to be determined so as to consider how this will affect your post 1 July 2017 contributions with the interaction with the new caps.
- Note that where an individual is approaching the $1.6 million and the bring-forward cap has not been fully utilised in the previous 2 financial years, you will still have the opportunity to contribute up to the maximum $540,000 bring-forward cap albeit taking you over the $1.6 million lifetime limit before 30 June 2017.
- Where your superannuation ends up being over $1.6M, this in our view should not be of concern as superannuation will still be a tax efficient vehicle to hold your investments enjoying the concessional tax rates of 15% on income and 10% on long term capital gains.
The government has also opted against removing the work-test for individuals aged between 65 and 74 which was previously announced. People in this age bracket will still be required to work for at least 40 hours over a 30 day period in the financial year that they wish to make a contribution.
Finally, the government will also be deferring the commencement date of the ability to catch up on concessions by one year, to now 1 July 2018. This measure allows a person with unused concessional contribution limits in previous years to utilise them in future years, over a rolling 5-year period. This option is only available to people with a superannuation balance of less than $500,000. The concessional contributions limit is still limited to $25,000 for all individuals as previously announced in the budget.
If you would like to discuss any of these changes to superannuation, please contact Michelle Saunders, Marissa Bechta, or Jemma Sanderson on (08) 6311 6900.