Contributions – what the changed concessional and non-concessional caps may mean for you
With many of the changes announced in the 2016 Federal Budget now passed by Parliament, there is an amount of certainty that you can have when approaching your SMSF planning and the contributions you might wish to make to your SMSF.
The Government is lowering both the concessional (pre-tax) and non-concessional (after-tax) contribution limits from 1 July 2017.
One of the original proposed measures which received a lot of comment and caused concern was the $500,000 lifetime non- concessional contributions (after-tax contributions) limit.
This proposed measure was dropped and replaced with a $100,000 annual limit on after-tax contributions.
Pre-tax contributions will be limited to $25,000 for all taxpayers from 1 July 2017.
Below is a summary of the changes for both concessional and non-concessional contributions.
After- tax contributions
- The $500,000 lifetime limit has been dropped in favour of a $100,000 annual cap. The rules allow the opportunity to bring forward three years of contributions – making it possible to contribute $300,000 in one year.
- For the 2016/17 year, it is still possible to make a contribution of up to $180,000 for one year, or to bring forward three years’ contributions – so you are able to make a contribution of up to $540,000. If you do not use this full limit of $180,000 or $540,000 in the 2016/17 year, then you will be limited to the $100,000 annual and $300,000 bring forward caps for future years.
- Where the bring forward of contributions has been triggered before 1 July 2017, transitional contribution caps may apply.
- If you have a balance of $1.6m or more in your SMSF at 1/7/2017 then you will not be able to make further after-tax contributions.
- When approaching the $1.6m cap care will need to be taken with the bring forward rules as these are restricted by the new $1.6 million balance restriction.
Pre-tax contributions:
- The concessional contributions cap is lowered to $25,000 per year for all taxpayers from 1 July 2017.
- Taxpayers who were aged 49 or over on 30 June 2016 can make up to $35,000 in pre-tax contributions in 2016/17.
- Those aged under 49 on 30 June 2016 can make up to 30,000 in pre-tax contributions in 2016/17.
Some of these changes may require you to adjust your contribution strategies going forward.
This will most likely be the case if you have a superannuation balance of over or close to $1.6 million or were planning on making significant contributions to superannuation in the next few years.
“Changes to contribution caps create opportunity — but only when you understand how to use them correctly.”
How can we help?
If you are concerned that the Government’s changes to contributions for superannuation are going to affect you, please feel free to give Cayle Petritsch or Martin van der Saag a call on 02 9984 7774 so we can discuss your particular requirements in more detail.
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
Higher Caps Mean Greater Opportunity
Increased contribution limits allow eligible individuals to boost super balances more effectively.
Planning Is Essential to Avoid Penalties
Understanding how contributions are counted helps prevent accidental cap breaches.
Contribution Types Matter
Knowing the difference between concessional and non-concessional contributions is critical for tax efficiency.
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Frequently Asked Questions
What are concessional and non-concessional contribution caps?
Concessional caps limit before-tax contributions such as employer super and salary sacrifice, while non-concessional caps apply to after-tax personal contributions.
Why do contribution caps change?
Caps are periodically adjusted to reflect economic conditions and provide greater flexibility for Australians to build retirement savings.
Who benefits most from higher contribution caps?
Higher-income earners, business owners and individuals catching up on super later in life often benefit the most from increased caps.
What happens if I exceed a contribution cap?
Exceeding caps can result in additional tax and administrative complexity, making careful planning essential.
Should I change my super strategy because of cap changes?
Possibly. Reviewing your contribution strategy helps ensure you take advantage of increased limits without triggering penalties.
Can I still contribute up to $540,000 using the bring-forward rule in 2016/17?
Yes. In 2016/17, you may still be able to contribute up to $180,000 in one year, or up to $540,000 if you trigger the three-year bring-forward rule.
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