New considerations for non-concessional contributions
Individuals with a superannuation balance more than the transfer balance cap will no longer be able to make non-concessional contributions from 1 July 2017. This change in policy is included in the third tranche of superannuation reforms which were originally announced in the 2016/17 Federal Budget.
The new rules effectively restrict a member’s non-concessional superannuation contributions to the maximum allowed account-based pension.
Another corresponding change to non-concessional contributions will be that, from 1 July 2017, the maximum yearly limit will be reduced from $180,000 to $100,000.
Changes will also apply to the “bring forward rule” so that three years will only be available to individuals in certain circumstances. Effectively, members under 65 years of age must have an opening balance under $1.4m in order to utilise three years of non-concessional contributions. The bring forward rule table that will apply from 1 July 2017 is as follows:
|
Total opening superannuation balance (at 1 July 2017): |
Non-concessional contributions cap for the first year |
Bring forward period |
|
Less than $1.4m |
$300,000 |
three years |
|
$1.4m to less than $1.5m |
$200,000 |
two years |
|
$1.5m to less than $1.6m |
$100,000 |
No bring forward period, general non-concessional cap applies |
|
$1.6m or more |
Nil |
N/A |
In addition to the following changes, transitional rules will apply to individuals who are currently using the bring forward rule. Even though the non-concessional cap will not change for the 2015/16 and 2016/17 income years, individuals who have triggered the bring forward rule in those years will have a reduced cap after 1 July 2017.
“Non-concessional contributions can be powerful, but the rules around them are becoming increasingly complex.”
Opportunities Available
There is now certainty regarding the limit for the 2016/17 income year, with these changes not coming into effect until 1 July 2017. As a result, all individuals under 65 may utilise the bring forward rule for a maximum contribution of $540,000. This contribution is only available for individuals who haven’t used the bring forward rule in the 2014/15 or 2015/16 income years.
The 2016/17 income year will be the last opportunity for members over $1.6m in superannuation to contribute their after-tax savings into a tax effective investment vehicle. Please note however that all earnings on superannuation interests above $1.6m will be taxed at 15% regardless of pension status from 1 July 2017.
This final year of contributions can also be beneficial for persons willing to move around their superannuation balances between spouses or individuals under $1.6m.
If you have any questions please feel free to call Cayle Petritsch or Martin van der Saag on 02 9984 7774.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Total Super Balance Is Now Central
Your total super balance directly impacts how much, if anything, you can contribute after tax.
Contribution Opportunities May Be Reduced
Higher balances can limit or remove access to non-concessional contributions and bring-forward arrangements.
Timing Matters
Strategic timing of contributions can help maximise available caps and flexibility.
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Frequently Asked Questions
What are non-concessional super contributions?
Non-concessional contributions are after-tax contributions made to superannuation that do not attract a tax deduction.
What new considerations apply to non-concessional contributions?
Recent changes link eligibility and contribution limits more closely to an individual’s total super balance, reducing or eliminating contribution options for some people.
How does my total super balance affect my ability to contribute?
Your total super balance at 30 June of the previous financial year determines whether you can make non-concessional contributions and whether the bring-forward rule is available.
Can I still use the bring-forward rule?
Possibly. Eligibility depends on your age and total super balance, so careful planning is required before triggering the rule.
Should I seek advice before making non-concessional contributions?
Yes. Incorrect contributions can result in excess contribution penalties, making professional advice important before acting.
If my super balance is already close to $1.6 million, should I still make a non-concessional contribution?
You need to be careful. From 1 July 2017, anyone with a super balance of $1.6m or more will generally no longer be able to make non-concessional contributions, so planning before contributing is important.
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