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New considerations for non-concessional contributions

Posted by Northadvisory on November 21, 2016

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.

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.