The government has released draft legislation on the majority of its superannuation reforms. We have summarised the important details around the proposed new measures.
The government has announced it will not proceed with the lifetime non-concessional contributions cap proposed in the 2016-17 Federal Budget, which would have applied from Budget night and included eligible contributions made since 1 July 2007.
Non-Concessional Contribution Cap – Before 1 July 2017
The proposed changes to the NCC cap will apply from 1 July 2017. Contributions made before that date will be subject to the current law. This means that the current legislated cap of $180,000, or $540,000 under the 3 year bring-forward rule may still be utilised before 1 July 2017, as illustrated in the following examples.
Example where the $540,000 3 year bring forward provision is fully used before 1 July 2017.
Individuals who trigger the current 3 year bring-forward in either 2015/16 or 2016/17, but do not fully utilise the current NCC bring-forward cap of $540,000 before 1 July 2017 will be subject to transitional provisions. (See below)
Transitional Non-Concessional Contribution Cap for 2017/18 and 2018/19 years
Individuals who trigger the 3 year bring-forward rule in 2015/16 or 2016/17, but do not fully ultise that amount will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the reduced annual contribution caps.
The transitional cap will be the sum of the current NCC cap ($180,000) that applied in the year the bring-forward was triggered and the NCC cap in the next two years, as per the table below.
No more non-concessional contributions if super balance exceeds $1.6 million
Where an individual has a total super balance at 30 June 2017 which is greater than $1.6 million (this figure will be indexed in $100,000 increments), you will no longer be able to make further non-concessional contributions.
Non-Concessional Contribution Cap – After 1 July 2017
From 1 July 2017 the new non-concessional contribution cap will be $100,000. The new cap is four times the annual concessional contribution cap.
Individuals with a superannuation balance of more than $1.6 million will no longer be able to make Non-Concessional Contributions from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year.
$1.6 million pension cap
From 1 July 2017, a $1.6 million ‘transfer balance cap’ will limit the total amount of super that can be transferred into the tax-free pension phase. The general pension cap will be indexed to CPI in $100,000 increments.
The transfer balance cap is an individual cap. Each member of a couple has a $1.6 million personal pension cap.
If you have equal to or greater than $1.6 million pension account post 1 July 2017
Any amounts greater than the $1.6 million cap can remain in superannuation accumulation. This means that the income generated on the accumulation portion will be taxed at 15% and capital gains at 10% which have been held for more than 12 months.
Example, James has an allocated pension with $1.8 million balance as at 30 June 2017.
Post 1 July 2017 James can continue with a $1.6 million allocated pension and hold the remaining $200,000 in accumulation phase.
Opportunity to contribute to super
An opportunity exists for individuals wishing to make significant contributions to superannuation before 30 June 2017. The post 1 July 2017 contribution caps will significantly reduce.
Also individuals who currently have $1.6 million in superannuation/pension assets will be able to make non-concessional contributions to superannuation prior to 30 June 2016. This is likely to be the last year individuals with super savings of at least $1.6 million will be able to make a non-concessional contribution.
Please bear in mind that these proposed changes are yet to be made law.
If you have any questions regarding the proposed superannuation changes please do not hesitate to contact our Financial Adviser Tim Ward on 07 3620 0000 or email tim@wardandco.net.au