On 15 September 2016, the Government announced the following three changes to the superannuation proposals originally contained in the 3 May 2016 Budget:
- The $500,000 non-concessional lifetime cap has been replaced by an annual $100,000 non-concessional contributions cap but that is subject to conditions (see below);
- The start date to allow catch-up concessional contributions for balances of less than $500,000 will be deferred to 1 July 2018 (previously proposed to start 1 July 2017); and
- The work test will not be abolished for people aged 65 to 74 (i.e. this means that individuals in that age bracket may only make superannuation contributions if they are gainfully employed for at least 40 hours in a 30 day period in a financial year).
Unless otherwise specified, all changes are due to apply from 1 July 2017.
What do these proposed changes mean for you?
1 No more $500,000 lifetime superannuation cap but different rules to limit non-concessional contributions
Although the proposed $500,000 non-concessional contributions lifetime cap has been abandoned, non-concessional superannuation contributions will still be limited in the following ways from 1 July 2017:
- If an individual’s superannuation balance is below $1.6 million, such an individual would only be allowed to contribute up to $100,000 of non-concessional contributions per year (currently the annual non-concessional contributions cap is $180,000); and
- If an individual’s superannuation balance is $1.6 million or more, such an individual would no longer be allowed to make any non-concessional contributions.
This $1.6m eligibility threshold will be based on an individual’s superannuation balance at 30 June the previous year (i.e. the last day of the year before the year in which the non-concessional contribution is made). and the $1.6 million will be tied and indexed to the proposed $1.6 million transfer balance cap that can be in the tax-free retirement phase.
The three year bring forward rule will continue to apply for individuals with superannuation balances below $1.6 million (i.e. individuals under the age of 65 can contribute 3 x $100,000 = $300,000 over a 3 year period).
Care should be taken if the bring forward rule is triggered before 1 July 2017 (i.e. an apportionment will be required between the existing $540,000 bring-forward amount and the proposed $300,000 bring-forward amount from 1 July 2017).
All these proposals mean that, from 1 July 2017, individuals should be able to contribute (until their superannuation balance reaches $1.6 million):
- a total of $125,000 per year (i.e. $25,000 of concessional contributions and $100,000 of non-concessional contributions); or
- a total of $325,000 in one year if they use the “bring forward” rule (i.e. $25,000 of concessional contributions and $300,000 (i.e. 3 x $100,000) of non-concessional contributions.
Proceeds from the disposal of assets exempt from CGT under the 15 year exemption or the retirement exemption (e.g. small business CGT concessions) up to a lifetime CGT cap of $1.415 million in the 2017 income tax year, will not count towards the non-concessional cap. Therefore such amounts can be contributed to superannuation without breaching any non-concessional contribution cap rules.
2 No removal of work test
The current work test will remain – individuals aged between 65 and 74 will only be allowed to make superannuation contributions if they meet the work test. Such individuals will still not be able to apply the bring-forward rule for non-concessional contributions.
3 Defer start date for making catch-up superannuation contributions
Individuals who have been out of the workforce (e.g. parents who have taken time out of the work force while caring for their children)and therefore have not contributed to superannuation in that time will be allowed to make catch-up contributions from 1 July 2018 provided:
- They have not reached the contribution caps in the last 5 years; and
- They have a superannuation balance of less than $500,000.
This utilisation of unused caps from previous years will only be allowed for a period of 5 years – carried forward unused cap amounts from previous years will expire if they have not been used after five years.
How can Nexia Edwards Marshall NT help you?
We note that the proposed changes are not yet law and any proposal may change before becoming law. Nexia Edwards Marshall NT will keep you updated on any new developments in this field.
Please speak to Sarah McEachern or your Nexia Edwards Marshall NT adviser if you would like to discuss anything mentioned in this alert