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 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.
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).
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