Q. I believe the changes to Superannuation contribution rates have now been passed by Parliament. Can you please explain what I can contribute now and what happens after the changes take effect. I am 59 years old, married and employed.
A: Here is a summary of the current arrangements that are in place until 30 June 2017 and the new limits that take effect from 1 July 2017.
Employer or personal deductible Superannuation contributions for those age 49 or over on 30 June 2016 will be capped at $35,000 (Concessional Contribution Cap). For those under age 49, the limit is $30,000. You have until 30 June 2017 to use these higher contribution caps. From 1 July 2017, the Concessional Contribution cap will reduce to $25,000 regardless of age.
For personal contributions (Non-concessional contributions) where a tax deduction is not claimed, you are permitted to contribute $180,000 for this financial year, or provided you are under age 65 you can contribute $540,000 as a “bring forward” of future contributions under the current $180,000 cap.
From 1 July 2017, the annual non-concessional contribution cap will reduce to $100,000. Further, the 3-year “bring forward” of non-concessional contributions will still be permitted, however, the maximum “bring forward” amount for “bring forward” periods commencing on or after 1 July 2017 will be $300,000, being three times the annual limit.
Importantly special rules apply where the 3-year “bring forward” period has already been triggered in the 2015-16 or 2016-17 tax year but not used up prior to 1 July 2017. This could occur if, for example, you contributed in excess of $180,000 but had not contributed up to the full amount of $540,000.
In these scenarios, the following transitional arrangements will apply. If the “bring forward” was triggered in the 2015-16 tax year, the cap will reflect 2 years of $180,000 and one year of $100,000. Therefore the transitional “bring forward” cap will be $460,000.
If the “bring forward” was triggered in the 2016-17 tax year, the cap will reflect 1 year of $180,000 and 2 years of $100,000. Therefore the transitional “bring forward” cap will be $380,000.
Where the “bring forward” provisions have been triggered and the cap has been reached, no further non-concessional contributions may be received into the fund until the 3 years has elapsed since the “bring forward” was triggered.
If your Superannuation balance is $1.6 million or greater on 1 July 2017 or subsequent tax years, you will no longer be eligible to make non-concessional contributions to Superannuation in that Financial year. Furthermore, if triggering a “bring forward” contribution will take the balance over $1.6 million, you may only make a contribution that will take you up to $1.6 million. This measure replaces the proposed $500,000 lifetime non-concessional contribution limit that was previously announced as part of the 2016 Federal Budget.
Future indexation of the Concessional Contribution cap will be based on increments of $2,500 as opposed to $5,000 under the current rules. The Non-Concessional Contribution Cap will be set at 4 times the Concessional Contribution Cap.
They key point to recognise is that up to 30 June 2017, the rules that existed prior to Budget night continue to apply. The legislated changes apply for contributions made from 1 July 2017. So if you are looking to capitalise on the current higher contribution limits, you would be very wise to action prior to 1 July 2017.