The bringing back of annual NCCs and ’2 year bring-forward’ rules
Sound confusing? Well it is quite complex, as there are a number of ways the changes can be applied depending on your circumstances. Let me explain.
On 15 September 2016, Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly Dwyer announced significant changes to the largely unpopular superannuation reforms proposed on Federal Budget night in May this year.
Below is a summary of the key changes announced and what they mean:
- The scrapping of the proposed Lifetime $500,000 Non-Concessional Contribution (NCC) limit per person, which was made effective on Budget night.This is very good news, as this lifetime cap was retroactively back-dated to include all NCCs (or personal after-tax contributions) made to each individuals super accounts from 1 July 2007 onwards. Not only was this measure difficult to calculate but it was unfair on those people planning to contribute more than $500,000 to super over their lifetime from future inheritances, sales of businesses, properties or other investments in order to fund a dignified retirement without relying on Government welfare or handouts
- From 1 July 2017, there will be a new annual Non-Concessional Contribution cap of $100,000 (reduced from the current annual cap of $180,000) and if you are under the age of 65, you will still be able to use the ‘2 year bring-forward’ rules going forward.This means that if you are under age 65 and have not triggered the NCC bring forward cap by contributing over $180,000 in any of the past 3 financial years, you can contribute up to $540,000 for the last time this financial year (before 30 June 2017).
- From 1 July 2017, only those with a superannuation account balance below $1.6 million (assessed as at the previous 30 June) will be able to make Non-Concessional Contributions. Importantly, if your individual super balances are close to, or already exceed $1.6 million, this represents a final opportunity to make NCCs up to $540,000 each (3 x $180,000) utilising the ‘2 year bring-forward’ rules before 30 June 2017.And from 1 July 2017, based on the current information available, if you have less than $1.6 million in super as at the prior 30 June, but more than $1.5 million, you can still contribute a total amount of $100,000 as a Non-Concessional Contribution (not just the shortfall to the $1.6 million total).
- The Government will retain the existing requirement that you must meet the ‘work test’ to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement).This is a disadvantage for those in the 65 to 74 age bracket who have funds to contribute to super but cannot meet the work test rules (i.e. being gainfully employed on at least a part time basis for 40 hours in a 30 day period, during the financial year in which contributions are made).
- There are no changes to the proposals around tax-deductible Concessional Contributions (including lowering the cap from $35,000 to $25,000 per annum) other than delaying the “catch-up” opportunity for those with less than $500,000 in super by 12 months to a 1 July 2018 commencement.
Examples of bring-forward NCCs transitional arrangements
Where an individual has triggered the bring forward in 2015-2016 or 2016-2017 but has not used it fully by 30 June 2017, transitional rules will apply.
Where an individual triggers the bring forward in 2016-2017, the transitional cap is $380,000 (the current annual cap of $180,000 plus $100,000 annual cap in 2017-2018 and 2018-2019). See examples 1 and 2 in the table below.
If an individual triggers the bring forward in 2015-2016, the transitional cap is $460,000 (the current annual cap of $180,000 in 2015-2016 and 2016-2017 plus $100,000 annual cap in 2017-2018). See example 3 in the table below.
More on the $1.6 million eligibility threshold
Individuals are unable to make further NCCs where their total superannuation balance is $1.6 million or more (tested at 30 June of previous financial year). Where an individual’s balance is close to $1.6 million, they can only make a contribution or use the bring forward to take their balance to $1.6 million but not beyond.
It’s important to be aware these proposed changes are not yet law but are expected to be introduced into Parliament by the end of 2016. There is likely to be a consultation draft released prior to that time which is expected to have more detail on the changes.
The Integrated Financial Solutions group will keep you informed of any further developments and the passage of the legislation through Parliament and the Senate
If you would like more information, click on the following link to the Government’s Superannuation Reform Fact Sheet: http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Superannuation-Reforms.
In the meantime, if you have any questions contact our office on telephone 07 3252 7665.