There may be only 9 months left for high balance members to substantially build up super

21 September 2016

Last Thursday the Government made three important changes to the superannuation measures it proposed in the Budget:

  • $100,000 annual NCC Cap – it proposes, from 1 July 2017, to replace the controversial and retrospectively operating $500,000 lifetime non-concessional contributions (NCC) cap measure with an annual $100,000 p.a. NCC cap until a member reaches a balance of $1.6 million after which a member won’t be able to contribute any more NCCs to super;
  • Work-test for over 65’s to be retained – whilst the Budget initially proposed that the “work-test” required for voluntary contributions for individuals between age 65-74 would be abolished (this test requires a member to work 40 hours within 30 consecutive days in a financial year), to off-set the revenue loss from the changes to the NCC cap, it is proposed that the work-test now be retained; and
  • Deferral of concessional contributions ‘catch-up’ measure – again to offset loss of revenue from the proposed amendments to the NCC cap, the Government has decided to delay the proposal in the Budget for “catch-up” concessional contributions for members with $500,000 or less in superannuation so that the measure will start on 1 July 2018, rather than 1 July 2017 as previously announced. Under this measure qualifying individuals will be able to access their unused concessional contributions cap space on a rolling basis for a period of five years. Amounts that have not been used after five years will expire.

The most important change from this announcement is clearly the newly proposed $100,000 annual NCC cap which will not apply until the year beginning 1 July 2017 (rather than the previous lifetime cap which, despite the Government’s claims, was clearly retrospective in applying back to 1 July 2007). The new measure will allow the bring forward rule to continue to operate so that members under age 65 can bring forward two further years of the cap allowing potentially $300,000 to be contributed as NCCs in one financial year provided a member’s balance is not more than $1.6 million.

The prohibition on individuals contributing NCCs if they have a superannuation balance of more than $1.6 million only applies from 1 July 2017 so members who are aged under 65 on 1 July 2016 and have this much or more in super have a one-off opportunity to utilise the existing NCC bring forward rule to make substantial NCCs to super before the prohibition takes effect.

Utilising the existing NCC bring forward rule it will be possible to contribute up to $540,000 by 30 June 2017 (3 x $180,000), but this only gives members about 9 months to make the payment.

This will obviously be a serious consideration for any member under age 65 on 1 July 2016:

  • Who has at least $1.6 million in super and wants to build up their super further before the prohibition on NCCs takes effect on 1 July 2017; and
  • Who has a lower balance but considers the $100,000 p.a. NCC cap too low going forward or wants to take advantage of the opportunity to utilise NCCs to build up super of more than $1.6 million before the prohibition takes effect.

It is generally recommended that if someone does utilise the bring forward rule in 2016/17 they should utilise the full $540,000 allowed because where this is not the case any remaining bring forward amount will be reassessed on 1 July 2017 to reflect the new annual caps under transitional arrangements, meaning that a lower amount of allowable NCCs will apply.

Of course these changes don’t affect the ability to contribute with concessional contributions, rather than NCCs, but given the concessional contributions cap is proposed to be $25,000 from 1 July 2017 this may be a one-off opportunity to substantially build up super.

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