There's been a huge amount of changes to Superannuation as a result of announcements in the May 2016 Federal Budget. The Superannuation (Objective) Bill 2016, Treasury Laws Amendment (Fair and Sustainable Superannuation Bill 2016, and Superannuation (Excess Transfer Balance Tax) Imposition Bill were passed as legislation on the 09/11/16 and received Royal Assent on the 29/11/16.
This regular series will take a look at a different topic each week and explain how the new rules will work. This week, I will discuss Non Concessional Contributions.
OPPORTUNITIES FOR NON CONCESSIONAL CONTRIBUTIONS (NCC)
Non Concessional Contributions are contributions made from your personal after tax income. These contributions are not tax deductible and will go into super tax free.
The new NCC proposals will not be effective until 1 July 2017, so the current NCC rules remain in operation throughout 30 June 2017:
- NCCs of up to $180,000 per year can be made and;
- the opportunity for those who are under age 65 at any time in the 2016/17 income year to ‘bring forward’ an additional two years of annual NCC capacity. Therefore up to $540,000 of NCCs may be contributed before 1 July 2017.
From 1st July 2017
- NCCs of $100,000 per year[1] can be made and;
- the bring forward provision will still be available, but the maximum NCCs will be only $300,000 unless the transitional rules apply.
A new rule, also to apply from 1 July 2017, will remove eligibility to make NCCs where a client’s total super balance as at 30 June in the previous income year is more than $1.6 million. So for some clients 2016/17 may be their last opportunity to make NCCs.
WHO NEEDS TO BE WARY?
If you’re turning 65 this financial year, you may have the opportunity to make additional superannuation contributions without needing to meet the work test before your birthday. However, once you reach age 65, you will generally need to meet the work test to make any further superannuation contributions.
The work test requires that those aged 65 to 74 are gainfully employed for at least 40 hours in 30 consecutive days during the financial year before their superannuation fund can accept contributions.
Under current contribution limits, you are able to make $180,000 of after-tax superannuation contributions per year, and as your 65th birthday occurs in this income year, you are able to bring forward up to two future years of contribution entitlement. This means that you may be able to contribute a maximum of $540,000 by 30 June 2017.
You are likely to have more than $1.6 million in super as at 30 June 2017
From 01/07/17 there will be a $1.6 million super balance test [2] for eligibility to make NCCs. The test will be based on total super account balances as at 30 June in the prior income year.
As the current NCC rules will continue to apply until 30 June 2017, and the $1.6 million test doesn’t currently apply this year (2016/17), may be your last chance to make NCCs if you are likely to be close to, or exceeding $1.6 million in super on or after 30/06/17.
The $1.6 million NCC eligibility test will also limit the ability to trigger the bring forward option from 1 July 2017. The bring forward option will be available only to bring forward the annual cap amount for the number of full years that would take a client’s balance to $1.6 million. From 01/07/17 the following occurs: [3]
| Superannuation Balance as at 30/06/17 |
NCC Cap available in 17/18 year |
Bring forward period |
|
Less that $1.4 million
|
$3000,000
|
3 years
|
|
$1.4 million to $1.499 million
|
$2000,000
|
2 years
|
|
$1.5 million to $1.599 million
|
$1000,000
|
No bring forward, general NCC cap applies
|
|
$1.6 million +
|
Nil
|
N/A
|
Careful thought will need to be given to contributions for those who want to contribute as much as possible into super, but do not have the ability to do the whole $540,000 in this 16/17 financial year.
| NCC Amount |
Year |
Applicable rules |
| $250,000 |
16/17 |
Current rules - ables to bring forward up $540,000 if aged under 65 at any time in the 16/17 year |
| $110,000 |
17/18 |
New rules - total cap of $380,000 representing $180,000 under old rules and $100,000 per annum under new rules (assumes super balance < $1.6M) |
| $20,000 |
18/19 |
As above |
| $380,000 |
TOTAL NCC |
|
As you can see the new rules add an additional layer of complexity to non concessional contributions and you should seek advice prior to making any non concessional contributions this year.
Kylie Wright is a CFP® and is an SMSF Specialist Adviser™, before doing anything with your super, please speak to an Ulton Wealth Manager today, to ensure its appropriateness for your circumstances. Please contact Ulton Wealth Management on (07) 4154 0400.
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