The headline items to this measure is that the non-concessional contributions cap will be reduced from $180K to $100K, the “bring forward rule” will be reduced from $540K to $300K and that members with account balances over $1.6 million will not be able to make non-concessional contributions. But like most of the new measures there are additional complexities to the new non-concessional cap measures.
It is important to note that these measures do not commence until 1 July 2017. Therefore contributions can continue to be made under the current laws until then (ie $180K non-concessional contributions, $540K under the bring forward rule and non-concessional contributions even where the member’s balance exceeds $1.6 million).
The $1.6 million benefit limit
A member who has a “total superannuation balance” of more than $1.6 million at 30 June in the prior year cannot make a non-concessional contribution in the current year. The limit is measured each year so that if a member’s total superannuation balance drops before the limit at a 30 June then the member can again make non-concessional contributions in the following year.
Indexation of the $1.6 million limit
The $1.6 million limit will increase by indexation equal to CPI in $100K increments in the same way that the general transfer balance cap will. Unlike the transfer balance cap the increase will not be proportional (ie all members receive the full $100K indexation).
Structured settlement
Structured settlements for personal injury payments contributed into superannuation are not caught by the $1.6 million limit and can continue to be contributed regardless of a member’s account balance.
CGT cap
Contributions under the CGT cap are also not caught by the new $1.6 million limit. Therefore, members can continue to make contributions under the “retirement exemption” of up to the lifetime cap of $500K and under the indexed cap for the “15 year exemption”, currently $1.415 million.
However, such contributions will count for the $1.6 million total superannuation balance once they are contributed into a superannuation fund. Therefore, consideration should be made to making non-concession contributions in the same year (or earlier years) that such CGT cap contributions will be made.
Modification of the bring forward rule - general
As noted above, with the reduction of the non-concessional cap the bring forward rule has also been reduced to $300K.
The ability to access the bring forward rule has also been modified depending on how close the member’s account balance is to the limit. If the member’s benefits are $300K or more below the limit they can make the full 3 year bring forward. If the member’s benefits are between $300K and $200K less than the limit then they can bring forward 2 years’ worth of contributions. If they are between $100K and $1 less than the limit then they can only make the one year’s worth of non-concessional contributions. If they are over the limit then they can’t make non-concessional contributions.
The following summaries this measure under the caps and limits that will apply at 1 July 2017:
- Total superannuation balance on 30 June is less than $1.4 million – 3 year bring forward ($300K) can be used
- Total superannuation balance on 30 June is between $1.4 million and less than $1.5 million – 2 year bring forward ($200K) can be used
- Total superannuation balance on 30 June is between $1.5 million and less than $1.6 million –no bring forward can be used (normal cap applies ie $100K)
- Total superannuation balance on 30 June is $1.6 million or more – no non-concessional contributions can be made in the following year
Modification of the bring forward rule – transitional
If a member triggered their bring forward rule in 2015/16 and have not utilised the full $540K by 1 July 2017 then their remaining bring forward for the 2017/18 year is $100K (ie a total bring forward of $460K).
If a member triggered their bring forward rule in 2016/17 and have not utilised the full $540K by 1 July 2017 then their remaining bring forward for the 2017/18 and 2018/19 years is $200K (ie a total bring forward of $380K).
Prior to 1 July 2017
Prior to 1 July 2017, non-concessional contributions can continue to be made under the current laws. That means that, until 1 July 2017, members can make:
- $180K non-concessional contributions;
- $540K under the bring forward rule; and
- non-concessional contributions even where the member’s balance exceeds $1.6 million.
Therefore, members could consider making contributions prior to 1 July 2017 to take advantage of these caps. This could include transfers of real estate as non-concessional contributions. In Victoria (and in some other States) this can be achieved with triggering duty (as discussed in one of our previous articles).
To discuss this article, or for further information please contact:
Phil Broderick
Principal
Sladen Legal
T +61 3 9611 0163 l M +61 419 512 801
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: pbroderick@sladen.com.au
Melissa Colaluca
Associate
Sladen Legal
T +61 3 9611 0161
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: mcolaluca@sladen.com.au
