The Federal Government recently reversed its budget proposal of limiting non concessional contributions to a lifetime cap of $500,000. In its place, the Government has proposed to lower the non concessional contributions cap from its current level of $180,000 to $100,000 a year from 1 July 2017.
In doing so, it has provided some certainty as to the level of non concessional contributions that can be made for the 2016/2017 and future years notwithstanding some conditions.
Members under the age of 65 will still be able to access the 3 year bring forward rule, the equivalent of 3 years non concessional contributions. However, the amount will be reduced from $540,000 to $300,000 from 1 July 2017. Members over the age of 65 are not able to access the bring forward rule.
For the 2016/2017 financial year members under the age of 65 who have not activated the bring forward rule in the prior year(s) will be able to make a non concessional contribution of $540,000 for that year.
Transitional measures
Transitional measures have been put in place where the bring forward rule has not been fully exhausted before 1 July 2017 to take into consideration the proposed reduced cap.
Where non concessional contributions are to be made over the 3 year period then the following transitional rules are to be applied:
| Year bring forward rule activated | 2015 / 2016 | 2016 / 2017 | 2017 / 2018 | 2018 / 2019 | 2019 / 2020 | |
| 2015/2016 | Cannot exceed $460,000* | |||||
| 2016/2017 | Cannot exceed $380,000** | |||||
| 2017/2018 | $300,000 | |||||
*$460,000 = ($180,000 + $180,000 + $100,000)
**$380,000 = ($180,000 + $100,000 +$100,000)
For example, Sue has a total superannuation balance of $650,000. Sue makes a non concessional contribution in 2016/2017 of $250,000, activating the 3 year bring forward rule. Sue can make further non concessional contributions totalling $130,000 over the years 2017/2018 to 2018/2019.
However, where the non concessional contributions exceed the following transitional caps prior to 1 July 2017 then no further non concessional contributions can be made towards that cap:
| Year bring forward rule activated | 2015 / 2016 | 2016 / 2017 | 2017 / 2018 | 2018 / 2019 | 2019 / 2020 | |
| 2015/2016 | More than $460,000 | nil | ||||
| 2016/2017 | More than $380,000 | nil | nil | |||
For example, as in the above example, Sue has a total superannuation balance of $650,000. However Sue makes a non concessional contribution in 2016/2017 of $400,000, (below the $540,000 cap but over the transitional cap of $380,000) activating the 3 year bring forward rule. As this amount is in excess of the transitional cap of $380,000 no further non concessional contributions can be made for the 2017/2018 to 2018/2019 years.
Eligibility threshold
Generally, the age and working status of the member determined the level of contribution that they could make into their superannuation fund.
From 1 July 2017, members will now also need to consider the level of their total superannuation balance before making any non concessional contribution. A member will only be able to make non concessional contributions if their account balance as at 30 June the previous year is less than $1.6 million.
Where the members account balance is close to $1.6 million then the member will only be able to make non concessional contributions and access the 3 year bring forward rule that would take the members balance to $1.6 million.
The following table from the Budget 2016, Superannuation Fact Sheet 04 provides the amount of contribution and bring forward available.
| Superannuation Balance | Contribution and bring forward available |
| Less than $1.3 million | 3 years ($300,000) |
| $1.3 – < $1.4 million | 3 years ($300,000) |
| $1.4 – < $1.5 million | 2 years ($200,000) |
| $1.5 – < $1.6 million | 1 year ($100,000) |
| $1.6 million | nil |
The $1.6 million eligibility threshold will be indexed as per the transfer balance cap.
For example, John has a total superannuation balance of $1.45 million. He can make a non concessional contribution in 2017/2018 of $200,000. He cannot access the full 3 year bring forward rule as this would take his balance over $1.6 million. John would also not be able to make any further non concessional contributions.
From the information in the table, it would seem a member would be able to make non concessional contributions in excess of the $1.6 million cap of just under $100,000.
No details are however provided in the Fact Sheet to suggest that non concessional contributions could be made once the members account balance fell below $1.6 million.
Revised budget proposals
In light of the above changes, the Government has made a couple of revisions to its initial superannuation budget proposals.
A budget proposal that looked at removing the work test before a contribution could be made for members between the ages of 65 and 74 has also been reversed. The work test will still apply and require members to work 40 hours within a 30 day period each year before a contribution can be made.
The start date allowing members with superannuation balances of less than $500,000 to make additional concessional contributions up to the cap over a 5 year rolling period has been deferred to 1 July 2018.
Conclusion
Although the scrapping of the lifetime non concessional cap of $500,000 has been welcomed by the industry, it is worth noting that the above proposal has yet to be released as draft legislation. The Federal government is aiming to have its superannuation budget proposals as legislation sometime in the new year. It will be of interest to see what proposals end up being scrapped, altered and legislated between now and then.
Care should then be taken when implementing any of the above (current and proposed) for planning purposes.
October 2016 ~Fabio Salvatore, Concise Super
© Concise Super 2016