Significant Changes to the Superannuation Measures
Last week the Government announced significant changes to the Superannuation measures that were announced in the budget on 3 May 2016.
The following measures will not proceed:
- $500,000 lifetime cap on Non-Concessional Contributions
- Removal of the 'Work Test' for individuals aged between 65 and 74 which requires them to work at least 40 hours in not more than 30 days prior to making any contributions for the year
In addition, the proposal to allow individuals to roll over the unused portion of their concessional contributions cap for 5 years (provided their balance is less than $500,000) will be delayed by one year to 1 July 2018.
In place of the $500,000 lifetime cap on Non-Concessional Contributions, the Government has proposed a yearly cap on Non-Concessional Contributions of $100,000 until the individuals total superannuation balance reaches $1.6 million. Details include:
- Eligibility will be tested based on the individual's balance as at 30 June the previous year.
- Individuals aged under 65 will continue to be able to bring forward 3 years' worth of contributions ( the 'bring forward' method).
- If the bring forward method is triggered prior to 30 June 2017, transitional arrangements will apply and the remaining amount that can be contributed will be reassessed in line with the new cap.
This is proposed to commence from 1 July 2017, accordingly, the existing contribution caps would apply until 30 June 2017.
It is important to note that this proposal is yet to be legislated and passed by the parliament, at this stage it is unclear whether there is sufficient support for it to pass both houses.
We are yet to see any draft legislation regarding the proposed $1.6 million cap on pension accounts, so it is still unclear exactly how the proposal will apply in practice. The drafting of this legislation will be complex, so it may still be some time before we have the details to see the big picture. We will be in touch once we have the relevant details to hand.
How will you be affected?
The examples below shed some light on the impact of the reform.
Molly is 40 and has a superannuation balance of $200,000. In September 2016, she receives an inheritance of $250,000, which she puts into her superannuation. This triggers her three year bring forward, which is $540,000. From 1 July 2017, as the cap has been lowered, Molly can make a non-concessional contribution of $110,000 in 2017-18 and $20,000 in 2018-19. She can then access the new bring forward from 2019-20 and contribute up to $300,000 in non-concessional contributions.
Eamon has a total superannuation balance of $1.45 million. He can make a non-concessional contribution in 2017-18 of $200,000. He cannot access the full three year bring forward as this would take his balance over $1.6 million. Eamon would also not be able to make any further non-concessional contributions.
Current Contribution Caps
A reminder of the existing contribution caps are as follows:
|Less than 49
49 and over
* Determined at 30 June 2016
| 'Bring Forward'*
Utilising the 'Bring Forward' Method allows you to make up to 3 years' worth of non-concessional contributions in the one year, you are then not able to contribute for a further 2 years when the cap 'resets'.
* You must be aged under 65 during the year to utilise the 'bring forward method'
# Note that there are proposed transitional arrangements to reduce the amount that can be contributed under the bring forward method in line with the lower caps announced if it has not been fully utilised.
If you are over age 65 you must pass the work test prior to making any contributions to Superannuation.
* * * *
This Newsletter, of necessity, has dealt with matters of a technical nature in general terms only. Clients should contact us for detailed information on any of the items in the Newsletter. No responsibility for loss occasioned to any person acting or refraining from acting in reliance upon any material in this Newsletter can be accepted by any member or employee of the firm.