The Federal Government has made significant changes to its superannuation reforms. They have scrapped the controversial superannuation $500,000 lifetime non-concessional contribution cap and replaced it with an annual limit of $100,000. This is a backflip from the position of the Federal Government pre-election and is designed to win over the back bench and the Senate to pass their much anticipated Superannuation Reforms.
An individual with a super balance of more than $1.6 million will no longer be eligible to make non-concessional contributions. It’s expected all these changes will commence from 1 July 2017. The annual non-concessional cap will be reduced from $180,000 to $100,000 until the $1.6m superannuation balance is reached.
People under the age of 65 can continue to bring forward three years of non-concessional contributions given these are made as lump sums.
The superannuation legislation is likely to be in effect by the end of 2016 with an implementation date of 1 July 2017. This will be dependent on support from the Labor Party.
It’s safe to say that there will be a flurry of activity between now and 30 June 2017 with many looking to use the current bring forward rules to build their superannuation balance.
This is great news for SMSF members who were left scratching their heads with the proposed $500,000 lifetime cap and many who were left stranded trying to settle properties that were funded by non-concessional contributions.
The focus is on dumping the $500,000 lifetime cap however a number of changes were made to the announced budget proposals including that the reinstatement of the work test requirement for a member between the age of 65 and 75.
For the 2017 year, an individual’s annual non-concessional contribution cap remains at $180,000. For those aged 64 or under on 1 July 2016, they will be able to bring forward three years’ non-concessional contributions in the 2017 year, i.e. $540,000 (to the extent it hasn’t already been used).
So what has changed?
- Non concessional cap has been reduced from $180,000 to $100,000
- Members under the age of 65 can still utilise the three year bring forward rule
- Superannuation balances of more than $1.6m cannot make non-concessional contributions after 1 July 2017, but can make catch up concessional contributions from 1 July 2018.
The removal of the $500,000 lifetime non-concessional contribution cap is a positive change and we are left puzzled as to why the Federal Government stuck with the unpopular view for so long – after all, the proposed Superannuation Reforms almost lost the Government the recent election.
Since the budget announcement in May, there has been significant uncertainty of Superannuation members with their contribution strategy and this announcement provides certainty for members to implement their strategy and build their superannuation balance.
From 1 July 2017, you will be able to contribute up to $125,000 to your superannuation. Under the bring forward rules, you can contribute up to $325,000 including $300,000 in non-concessional contribution and $25,000 in concessional contributions. Members will be looking to utilise the current contribution caps pre-30 June 2016.
Please note this article is for information purposes only and does not constitute financial product or legal advice. The content has been prepared without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice
Ivan Filipovic is authorised through Dover Financial Advisers Pty Ltd – Australian Financial Services Licensee -License No. 30748 – Dover Authorised Representative Number 1244358
Redwood Wealth Pty Ltd – Dover Corporate Authorised Representative Number 1244359