The Government has released for public consultation the third round of draft legislation to implement the following measures announced in the 2016/17 Federal Budget and subsequent changes:
- Revision to the non-concessional contributions caps including new bring forward provisions
- Introduction of a general transfer balance cap
- Improve the refund mechanism for excess non-concessional contributions
The draft legislation provides detail on the operation of these measures and provides answers to many questions that arose following the release of the Budget papers in May.
Summary of key measures
The key measures relating to SMSFs are listed below.
Revised non-concessional contribution rules
From 1 July 2017, it is proposed that a new standard annual non concessional contribution cap of $100,000 will apply. This arrangement replaces the original announced lifetime $500,000 cap. As a consequence of this change additional constraints have been added to the ability to make non-concessional contributions beyond age and work test requirements. The total amount that a person has within the superannuation system will have a direct impact on the level of non-concessional contributions they may make and their ability to use the ‘bring forward’ rule.
What we know
- The standard non -concessional contribution cap will be equal to four times the standard concessional contribution cap of $25,000. Thus until the concessional contribution cap is indexed by AWOTE by $2,500 then the non-concessional contribution cap will be unchanged.
- The ability to make non-concessional contributions will be subject to the aggregate amount a person has in the superannuation system. If a person’s total superannuation balance is greater than the general transfer balance cap, then no non-concessional contributions are permitted. The general transfer balance cap is equal to the pension balance transfer cap of $1.6 million
- A ‘bring forward’ rule will continue to be available for those persons provided they were under age 65 at the commencement of the financial year in which they trigger the rule. The rule is triggered if a contribution greater than the standard annual non-concessional cap is made, subject to a maximum of three times that amount.
- As a result of the introduction of the general transfer balance cap, the ability to utilise the ‘bring forward’ rule will be affected. The size of a person’s total superannuation balance may restrict the extent to which they can use the ‘bring forward’ rule as illustrated in the following table.
| Total superannuation balance
||First year NCC amount
||Bring forward period
| Less than $1.4m
|| 3 years
| $1.4m to less than $1.5m
|| 2 years
| $1.5m to less than $1.6m
|| No bring forward allowed
| $1.6m or more
- If the bring forward rule is triggered, there is an additional requirement that in subsequent years the total superannuation balance must be under the general transfer balance cap to make any non-concessional contributions.
- Transitional rules will apply for those persons who triggered the ‘bring forward’ rule prior to 1 July 2017. If the bring forward amount is not fully utilised prior to 30 June 2017, then an adjusted three-year cap will apply after 1 July 2017.
Thus if you triggered the ‘bring forward’ rule in either 2015/16 or 2016/17 you have until 30 June 2017 to make further non concessional contributions that total to $540,000 for the period. If this does not occur, then a new limit will apply to the amount of additional non-concessional contributions a person may make after 1 July 2017.
For those who triggered the bring forward rule in 2015/16, the maximum would be $460,000 (180,000+180,000+100,000) unless they exceed this amount before 30 June 2017. For those who triggered the bring forward rule in 2016/17, the maximum would be $380,000 (180,000+100,000+100,000) unless they exceed this amount before 30 June 2017.
General transfer balance cap
From 1 July 2017, this amount will be used to determine a person’s ability to make non-concessional contributions and receive Government co-contributions.
What we know
- From 1 July 2017, the general transfer balance cap will be $1.6 million, the same as the Pension transfer balance cap.
- This cap will be indexed by CPI in $100,000 increments.
- The total superannuation balance is the same as that used for the catch up concessional contributions rules. This amount is the total of the superannuation interests in accumulation phase, plus the pension balance transfer amount, less any amounts still in accumulation phase that relate to structured settlements from personal injury.
- The total superannuation balance measured against the general transfer balance cap is that at the end of the previous year. So for the purposes of 2017/18 the total superannuation balance is as at 30 June 2017.
- Individuals will not be eligible to receive the Government co-contributions in an income year if their non-concessional contributions exceed their non-concessional contributions cap for that year or, if immediately before the start of the year, their total superannuation balance equals or exceeds the general transfer balance cap.
Improve the refund mechanism for excess non-concessional contributions
From 1 July 2017, the timings that relate to excess contributions refunds and release authorities will be made consistent, whether it is a payment relating to excess concessional or non-concessional contributions, or a Division 293 tax payment.
What we know
- The excess non-concessional mechanism will still provide an election process for the member. If the member does make an election then the ATO will send release authority to a selected default fund for payment. This will be the fund initially named on the determination.
Because of this process, where no election has been made the ‘old’ 47% excess tax will not apply. The only way this tax rate would apply is if the member specifically elects not to release an excess non-concessional contribution.