The Federal Government have recently released the third tranche of proposed Superannuation Legislation changes as first announced in the 2016 Budget.
The Government has reduced the amount of after tax contributions individuals can make to Superannuation from 1 July 2017. These changes will impact most Australians and their retirement contribution strategies will need to be reviewed as a result of the changes. The proposed changes will also impose a number of new bring forward limits which are overly complex to track for both advisors and clients.
Action Plan - The 2016/2017 Financial Year is the last opportunity for members with over $1.6m member balances (at 30 June 2017) to make Non-Concessional Contributions. Depending on age and cash availability – consider making Non-Concessional Contributions pre 30 June 2017 for eligible members.
It is likely when the final legislation is released there will be changes between draft and final – the following should be considered as draft proposals only.
Non-Concessional (After Tax Contributions/ Undeducted Contributions)
Implementation Date – 1 July 2017
Annual Cap of $100,000 for 2017/2018 (Based on four times the concessional limit of $25,000). This only applies to those with combined Superannuation Member Balances of below $1.6m at 30 June 2016.If your combined Superannuation member balance (from all SMSF and Retail Superannuation Funds) is more than $1.6m on 1 July 2017 then your Non-Concessional limit is ZERO (nil).
The following issues may affect Self Managed Superannuation Fund Members from 1 July 2017
Issue 1 – Age Differential- A married couple, if the age difference of spouses is significant, this could pose retirement planning problems. The existing strategy of making non-concessional contributions for the older member will no longer apply post 1 July 2017, if the older member has more than $1.6m. You may now need to consider making non-concessional contributions for the younger spouse (which means delaying the start of a pension for them). Careful consideration needs to be taken before any non- concessional contributions are made for the younger spouse.
Issue 2 – Building Assets Outside of Superannuation- If both members have balances over $1.6m at 1 July 2017, they may have an outcome where they build up a larger asset base outside of Superannuation. If their strategy was to make the $180,000 or $540,000 Non-Concessional contribution every three years (pre-age 65), this strategy is no longer valid post 1 July 2017.
Issue 3 – Market Valuation of Properties- For those Superannuation Funds with property and member balances close to $1.6m, property valuations could create issues by tipping the members over the $1.6m. As kerbside valuations can be subjective in nature, it may be prudent for trustees of Superannuation Fund to consider sworn written valuations if their member accounts are close to $1.6m.
Bring Forward Rules
Non-Concessional (After Tax Contributions/Undeducted Contributions)
Implementation Date – 1 July 2017
Certain individuals can access the bring forward Non-Concessional Rules. These rules are overly complex. For example, the amount of the bring forward, and the number of years over which they must use it will depend on their total superannuation balances at the time a bring forward is triggered.
Where an individual is eligible to bring forward their non-concessional contributions caps to the 2017-18 financial year, their cap for the first year is set out in the following table
|
Total superannuation balance on 30 June 2017 |
Non-concessional contributions cap for the first year |
Bring forward period |
| Less than $1.4 million | $300,000 | 3 years |
| $1.4 million to less than $1.5 million | $200,000 | 2 years |
| $1.5 million to less than $1.6 million | $100,000 | No bring forward period, general non‑concessional cap applies |
| $1.6 million or more | Nil | N/A |
Eligibility:
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An individual may only make non-concessional contributions up to the cap of $100,000 in a financial year if, immediately before the start of that financial year, the individual’s total superannuation balance was less than the general transfer balance cap;
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Individuals may be able to access a bring forward period for their non-concessional contributions cap equal to two or three times the annual cap, depending on their total superannuation balance (see calculation of the bring forward cap section below).
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Once an individual has accessed the bring forward cap in a financial year (the first year), the bring forward cap and the bring forward period is calculated by reference to the difference between the general transfer balance cap and the individual’s total superannuation balance in that first year. Once the bring forward period has expired, an individual may then access the annual cap or bring forward cap if eligible.
An individual will be eligible to access the bring forward non-concessional contributions cap in a particular financial year (the first year) if:
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their non-concessional contributions for that financial year exceed their general non-concessional contributions cap;
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their total superannuation balance is less than the general transfer balance cap;
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they are under 65 years of age at any time in that financial year;
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a bring forward period is not currently in operation in respect of the financial year; and
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the difference (the first year cap space) between the general transfer balance cap and their total superannuation balance is greater than the general non-concessional contributions cap.
Example 1 – From Exposure draft:
Harry is 63 years old and has a total superannuation balance of $1.55 million on 30 June 2017.
As the difference between the general transfer balance cap ($1.6 million) and Harry’s total superannuation balance ($1.55 million) is less than the general non-concessional contributions cap ($100,000), Harry is not eligible to bring forward any future non-concessional contributions caps.
Harry can make $100,000 of non-concessional contributions in the 2017-18 financial year.
Example 2 – From Exposure draft:
Lucy is 43 years old, her total superannuation balance on 30 June 2017 is $500,000. In the 2017-18 financial year, she makes $170,000 of non-concessional contributions.
Lucy can access the bring forward non-concessional contributions cap in the 2017-18 financial year because:
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Lucy’s total superannuation balance is less than the transfer balance cap of $1.6 million; and
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Lucy is under 65 years of age; and
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she does not currently have a bring forward period because of an earlier application of the bring forward rules; and
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the difference between the general transfer balance cap ($1.6 million) and her total superannuation balance ($500,000) is greater than the general non-concessional contributions cap ($100,000).
The amount of non-concessional contributions cap an individual may bring forward to a financial year and the bring forward period depends on their total superannuation balance immediately before that financial year.
$300,000 and three year bring forward period
If the first year cap space (the difference between the general transfer balance cap and an individual’s total superannuation balance) is greater than two times the general non-concessional contributions cap, an individual’s non-concessional contributions cap for the first year will be three times their general non-concessional contributions cap and their bring forward period will be three years. In 2017-18, that would equal $300,000 (three times $100,000) with a three year bring forward period.
Example – From Exposure draft:
Karen is under 65 years of age and has a total superannuation balance of $1.35 million on 30 June 2017.
The difference between the general transfer balance cap ($1.6 million) and Karen’s total superannuation balance ($1.35 million) is $250,000 which is more than two times the general non-concessional contributions cap ($200,000).
If Karen wishes to make more than $100,000 of non-concessional contributions in the 2017-18 financial year, her bring forward cap is $300,000 and her bring forward period is three years.
$200,000 and two year bring forward period
However, if the first year cap space (the difference between the general transfer balance cap and the individual’s total superannuation balance) is between two times the general non-concessional contributions cap and the general non-concessional contributions cap, then the bring forward cap will be two times the general non-concessional contributions cap and the bring forward period will be two years. That is, someone with a total superannuation balance of $1.4 up to $1.5 million on 30 June 2017 will be able to access $200,000 over a two year bring forward period.
$100,000 and no bring forward period
However, if the difference between the general transfer balance cap and the individual’s total superannuation balance is less than the general non-concessional contributions cap, then the individual is not eligible to a bring forward cap but can make non-concessional contributions equal to the general non-concessional contributions ($100,000 in 2017-18).
If the individual’s total superannuation balance is equal to or greater than the general transfer balance cap ($1.6 million in the 2017 18 financial year), they are not eligible for any non-concessional contributions cap. This eligibility criterion applies in every year of an individuals bring forward period.
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New law – 1/7/2017+ |
Current law to 30/06/2017 |
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Annual non‑concessional contributions cap |
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| The annual non‑concessional contributions cap is four times the annual concessional contributions cap.This equals $100,000 (4 x $25,000) in the 2017-18 financial year.Note: the annual concessional contributions cap has been reduced from $30,000 to $25,000 in Schedule 2 to this Bill. | The annual non‑concessional contributions cap is six times the annual concessional contributions cap.This equals $180,000 (6 x $30,000) in the 2016-17 financial year. |
| An individual must have a total superannuation balance of less than the general transfer balance cap on 30 June of the previous financial year to be eligible to make non‑concessional contributions up to the cap.The general transfer balance cap will be indexed in $100,000 increments in accordance with the Consumer Price Index (CPI). | There is no superannuation balance test to determine whether an individual is eligible to make non‑concessional contributions up to the cap. |
| Individuals may be able access a bring forward period for their non‑concessional contributions cap of two or three times the annual cap, depending on their total superannuation balance.In the 2017‑18 financial year, the amount of the cap an individual may bring forward is three times the annual cap over three years if their total superannuation balance is less than $1.4 million, two times the annual cap over two years if their superannuation balance is above $1.4 million and nil if their superannuation balance is $1.5 million or above.The individual must be under 65 years of age at any time in the first year of the bring forward cap.Transitional arrangements apply to individuals who brought forward their non-concessional contributions cap in the 2015-16 or 2016-17 financial years. | Individuals can access a three year bring forward period for their non‑concessional contributions cap of three times the annual cap.The individual must be under 65 years of age at any time in the first year of the bring forward cap. |
If you would like to discuss these legislation changes further, please contact our office to arrange an obligation free meeting.
Telephone: 0407 300 089
Email: robertp@foundationadvisory.com.au
Website: www.foundationadvisory.com.au
