The 2016 Federal Government Budget, proposed some of the most significant changes to superannuation that we have seen since 2007. However, as with all budgets and proposals, generally some things go through, some proposals are changes and some are scrapped.
With several traches of draft legislation now released, you might be wondering where are we up to with the proposed superannuation changes and what are the planning opportunities?
1. The reduction of the concessional contribution cap to $25,000 from 1 July 2017 and ability to have 'catch up contributions'.
From 1 July 2017, the concessional contributions cap (the total amount of superannuation guarantee, salary sacrifice and tax deductible contributions) is proposed to reduce to $25,000 from the current level of $30,000 for those under age 50 and $35,000 for those over age 50.
A higher rate of contributions tax for high income earners was also proposed with the taxable income threshold reducing from $300,000 to $250,000. This is also likely to go through as proposed.
2. Changes to the non-concessional contribution (NCC) rules and lifetime cap of $500,000.
This proposal has been scrapped by the government with a revised policy drafted and transitional arrangements in place.
It was intended to introduce a lifetime cap on NCC of $500,000 and to include all contributions made from 1 July 2007.
The new proposal provides for an annual NCC cap of $100,000 per financial year from 1 July 2017. The current $180,000 NCC cap will apply for the current 2017 financial year.
The rule that allows individuals aged under 65 to be able to 'bring forward' three years' worth of NCC will continue to apply. However, since the annual NCC cap will reduce to $100,000 per year, the maximum amount of NCC that can be brought forward will be reduced from $540,000 to $300,000 from 1 July 2017.
Ok, sounds simple enough you might say but here is where it gets complicated.
Where an individual has not fully used their 'bring forward' NCC cap before 1 July 2017, transitional arrangements apply.
- * If the 'bring forward' rule was invoked in the 2016 financial year and the individual does not intend to make further NCCs under the 'bring forward' rule in 2018, then the individual is entitled to make non-concessional contributions of up to $540,000 prior to 1 July 2017.
- * Where the individual has made NCCs amounting to $460,000 or more, then the remainder of their NCCs cap at 1 July 2017 will be reassessed to nil.
- * If the 'bring forward' rule was invoked in the 2017 financial year and the individual does not intend to make further non-concessional contributions under the 'bring forward' rule in 2018 and/or 2019, then the individual is entitled to make non-concessional contributions of up to $540,000 prior to 1 July 2017.
- * Where the individual has made NCCs amounting to $380,000 or more, then the remainder of their NCCs cap at 1 July 2017 will be reassessed to nil.
It's more complicated than it needed to be.
So what are the planning opportunities and considerations?
If you are currently salary sacrificing, then these levels and the associated tax impacts should be reviewed prior to 1 July 2017, to ensure that you will remain within the new caps.
Importantly with this financial year being the last opportunity to access the non-concessional contributions caps under the current rules, if you were considering making contributions into superannuation, utilising a withdrawal or re-contribution strategy to maximise tax-free component monies in superannuation, or balancing out member balances to maximise tax efficiency under the proposed pension transfer cap rules, then you need to act now.
We will be discussing these changes along with other Federal Budget, superannuation and retirement planning changes in our upcoming seminars.
This information is general in nature and does not take into account your personal goals, objectives or financial situation. Personal advice should be sought prior to making any investment or strategy decisions. Grant Lewis is an employee advisor of Johnsons MME Financial Advisory Pty Ltd ABN 30 141 828 033 and is authorised to provide advice on behalf of Johnsons MME Financial Advisory.
Grant is a Certified Financial Planner (CFP) with the Financial Planning Association (FPA) and an acredited Self Managed Superannuation Fund Specialist with The SMSF Association. He has completed a Bachelor of Business (Accounting) and Post Graduate Diploma in Finance (Financial Planning) with FINSIA.