A brief reprieve for superannuation

In summary:

The Government has announced a revised plan for superannuation changes put forward in the May 2016 Budget.  

The $500,000 lifetime non-concessional cap on contributions has been scrapped and replaced with a $100,000 annual maximum.

If legislated, the revised plan presents a significant opportunity to take advantage of the current provisions which allow you to contribute up to $540,000 of after-tax income into super.

 

In the May 2016 Budget it was announced that there would be a lifetime cap of $500,000 on non-concessional superannuation contributions. The lifetime cap was to be retrospective and would have taken into account all non-concessional contributions made on or after 1 July 2007.

Treasurer Scott Morrison has now revealed a revised plan which leaves the pre-budget superannuation rules in place until 30 June, 2017.

The much criticised lifetime cap proposal has been scrapped and replaced by a mechanism which allows people to make concessional and non-concessional contributions until they reach the new retirement balance cap of $1.6 million.

From 1 July 2017, the existing non-concessional contributions cap will be lowered from $180,000 to $100,000 per annum with a three year bring forward provision for individuals under age 65 still permitted.  That is, members can use three times the non-concessional contributions cap during a three financial year period ($300,000, being three times the annual limit of $100,000).  Until then, the current treatment of non-concessional contributions applies ($540,000, being three times the annual limit of $180,000).

 

What are concessional and non-concessional contributions?

 

Mandatory employer payments into super and voluntary top-ups made via salary sacrifice are called concessional contributions because they are taxed at a flat rate of 15 per cent, representing a discount for most of the work force.

Non-concessional contributions are those made from earnings that have already been taxed at the applicable marginal income tax rate.

While these changes are yet to be legislated, if passed there is an opportunity to take advantage of the outgoing $180,000 annual cap on after-tax contributions.  The existing provision for three years’ worth of contributions to be rolled forward means those with unused caps have a last chance to contribute up to $540,000 from after-tax income into superannuation before the new rules come into place on 1 July, 2017.

 

The following changes to previously announced budget measures were also announced:

 

• From 1 July 2017, individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions.
• The start date for catch-up concessional superannuation contributions will be deferred by a year to 1 July, 2018, to offset the cost of changes to non-concessional contribution arrangements.
• The contributions work test for individuals aged 65 to 75 will now remain in place (this test was to have been abolished from 1 July 2017).

 

Further help:

Marsh & Partners will continue to monitor the developments in this area and advise our clients to contact us prior to undertaking any action in response to this announcement. You can contact our SMSF advisors on 07 3023 4800 or at mail@marshpartners.com.au

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