Opportunities after Government back-flip on the superannuation reforms announced in the 2016 Budget.


Superannuation - What's in , What's out the door!

Superannuation – What’s in , What’s out the door!

So the ironclad changes to superannuation turned out to be more flexible and government policy more akin to a revolving door, one second its in and next it’s out the door. I am angry that the government created all this angst over the last 6 months only to water-down the changes and have damaged yet again the confidence in the superannuation system. They should have consulted with industry, ATO and their own members before announcing such major changes. However change was needed so at least they did show flexibility.

Below is a summary of the measures that have been amended. The detail of each measure will only be known once draft legislation is published and the final outcome will only be known after Parliament considers the legislation.

Non-concessional contribution cap – Lifetime limit –gonnnnnee!

The original proposal was to replace the existing non-concessional contribution (NCC) cap with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.

To ensure the passage of the Government’s broader superannuation package through the Parliament, Treasurer Scott Morrison confirmed this measure is to be replaced with an annual NCC cap of $100,000 (currently $180,000). Individuals under age 65 will also be able to continue using the bring-forward rule. This new NCC cap, which applies from 1 July 2017, will be based on four times the lower concessional contribution cap of $25,000.

However, people with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year. Those with account balances close to $1.6 million would only be able to make use of the bring-forward rule to the extent that the sum of the fund balance, the current year contribution and each brought forward contribution is less than $1.6 million. The threshold amount will be linked to the transfer cap amount relating to amounts being transferred to pension phase.

Individuals who have triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised that amount will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the new caps.

As the existing rules remain until 1 July 2017, SMSF trustees and other superannuants who are able to utilise the existing thresholds should consider doing so once the legislation is finalised. This is particularly important for those who have total superannuation savings of close to or exceeding $1.6 million. This is likely to be the last year individuals with super savings of at least $1.6 million will be able to make an NCC.

So if an SMSF member is under age 65 and hasn’t triggered the bring-forward rules, they could do so this year and contribute up to $540,000 this financial year.  This is a real opportunity for those who were concerned they wouldn’t be able to make any further contributions.

Recontribution Strategy back on the table

The recontribution strategy can now be reconsidered where appropriate but limited to the new $100,000 or 3 times that using the bring forward rule if under 65. This may help improve the taxable/ tax-free components of your account and aid with reducing tax on death benefits to non-dependant beneficiaries.

Important Note for Small Business Owners: There are no changes to the contributions made under the CGT cap amount of up to $1.415 million relating to the small business CGT concessions.

Work test over 65 to continue

The Government will retain the existing requirement that you must meet a work test to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement). So to make a contribution after age 65 you need to work at least 40 hours in a 30 day period during the year  and before you make the contribution. You are also limited to $100,000 non-concessional contributions with no 3 year bring forward available to you.

Catch up concessional contributions

The Government will continue with the proposal to reduce the concessional contribution (CC) cap to $25,000 from 1 July 2017. However, the commencement date for the catch up contributions will be delayed until 1 July 2018.

From 1 July 2018, individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in previous financial years. Amounts are carried forward on a five year rolling basis. Amounts not used after five years will expire.

This measure is limited to individuals with a super balance of less than $500,000. There is no detail as to when the account balance is assessed to determine eligibility.

If who have the capacity to fully utilise the current CC cap for 2016/17 may wish to consider doing so before the CC cap reduces.

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Others measures going ahead as proposed.

  • Reduce the CC cap to $25,000 from 1 July 2017
  • $1.6 million transfer cap for tax free earnings in the pension phase of superannuation and the need to reduce pension balances to this threshold by 1 July 2017
  • Tax on earnings for amounts held in a transition to retirement pension
  • Reduce the income threshold from $300,000 to $250,000 that the additional 15% tax is payable on CCs
  • Ability for all individuals to claim a tax deduction for superannuation contributions with the removal of the 10% test
  • Increase of the income thresholds for eligibility for the spouse superannuation contribution tax offset
  • Introduce the Low Income Superannuation Tax Offset (similar to the Low Income Superannuation Contribution which will be abolished from 1 July 2017)
  • Abolish anti-detriment payments
  • Apply the measures to defined benefit funds.

While I understand the need for budget secrecy to some extent, the government need to understand that their changes effect major systems like the ATO, Superannuation software and Accounting software as well as the reality that not all superannuation balance or contribution history information is available or up to date.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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1 Comment

  1. So How Much Can I Contribute to my SMSF Using the Bring Forward Rule | The SMSF Coach

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