Late last Friday afternoon, the Government released for public consultation, the third tranche of exposure draft legislation. This is in relation to the superannuation reforms initially announced in the 2016-17 Federal Budget. This third round covers the lowering of the annual (after-tax) non-concessional cap to $100,000 and to restrict the eligibility to make non-concessional contributions to individuals with superannuation balances below $1.6 million.
Just like the other tranches, it is not without its complexities. The purpose of these measures as stated by Treasury is to ‘better target the tax concessions to encourage those who have aspirations to build their superannuation balance up to the limit of the transfer balance cap while retaining the flexibility to accommodate lump sum contributions from one-off events such as receiving an inheritance or selling a large asset’.
The changes in a nutshell:
Individuals with a total superannuation balance of less than the general transfer balance cap ($1.6 million in the 2017-18 financial year) immediately before the start of the financial year will be able to make non-concessional contributions to their superannuation up to a cap of $100,000 in each financial year. This is a reduction to the current annual non-concessional contributions cap of $180,000.
The general non-concessional contributions cap is equal to four times the concessional contributions cap which will be reduced to $25,000 for the 2017-18 financial year. This general concessional contributions cap will be indexed and increased in $2,500 increments in line with AWOTE. This will then automatically flow through to the annual non-concessional cap.
Bring Forward Rule:
Individuals may be able to access the bring forward rule for their non-concessional contributions cap equal to two or three times the annual cap. This is dependent on their total superannuation balance.
The bring forward cap & period is calculated in reference to the difference between the general transfer balance cap and the individual’s total superannuation balance in the first year of when the bring forward rule was triggered. It is important to note that besides the normal rule that the member must be under the age of 65 and the bring forward period is not currently in operation in respect of the financial year, the bring forward rule can only be triggered in the first year where the gap between the general transfer balance cap and their total superannuation balance is greater than the general non-concessional cap.
Example:
Thomas is 63 years old and has a total superannuation balance of $1.55 million on 30 June 2017. As the difference between the general transfer balance cap ($1.6 million) and Thomas’ total superannuation balance ($1.55 million) is less than the general non-concessional contributions cap ($100,000), Thomas is not eligible to bring forward any future non-concessional contributions caps. Thomas can make $100,000 of non-concessional contributions in the 2017-18 financial year.
How to calculate the bring forward non-concessional contributions cap and bring forward period in the first year:
The amount of non-concessional contributions cap and bring forward period for an individual depends on their total superannuation balance immediately before the relevant financial year.
$300,000 and three year bring forward period:
A $300,000 bring forward cap and period will apply for the first year if the first year cap space (the difference between the general transfer balance cap and an individual’s total superannuation balance) is greater than two times the general non-concessional contributions cap.
Example:
Sue is 62 years old and has a total superannuation balance of $1.2million as at 30 June 2017. The difference between the general transfer balance cap of $1.6 million and her total superannuation balance is $400,000. As this difference is more than two times the general non-concessional contributions cap of $200,000, if Sue wishes she can bring forward up to $300,000 over a three-year period commencing in the 2017-18 financial year.
$200,000 and two year bring forward period
If the first year cap space is between two times the general non-concessional contributions cap and the general non‑concessional contributions cap, then the bring forward cap will be two times the general non-concessional contributions cap and the bring forward period will be two years. That is, someone with a total superannuation balance of $1.4 up to $1.5 million on 30 June 2017 will be able to access $200,000 over a two year bring forward period $100,000 and no bring forward period. As mentioned previously, if the difference between the general transfer balance cap and the individual’s total superannuation balance is less than the general non‑concessional contributions cap, then the individual is not eligible to a bring forward cap but can make non-concessional contributions equal to the general non‑concessional contributions ($100,000 in 2017-18).
How to calculate the non-concessional contribution cap for the second year.
Where an individual has triggered the bring forward rule in the prior financial year, the amount of the remaining non-concessional cap for the current or second year is based on the following:
- their total superannuation balance immediately before the start of the second year is less than the general transfer balance cap; and
- their non-concessional contributions for the first year was less than their bring forward cap for the first year.
This reasoning then continues for the third year should the three year bring forward period apply to the individual.
Transitional Rules:
Transitional rules apply to individuals who have activated the bring forward in the 2015-16 or 2016-17 financial years to ensure they do not retain the benefit of existing higher caps for the remainder of their bring forward period. The transitional provisions do not affect an individual’s non-concessional contributions caps for any financial year that ended before 1 July 2017. As an example, should a member trigger the bring forward rule in the 2016-17 year, their non-concessional contributions cap for the first year will have been set by the rules that applied to that financial year. However, their caps for the second and third years will be set by the transitional rules put in place by this Schedule. Therefore, the first year cap of $380,000 represents $180,000 for the first year (equal to the annual cap for 2016-17), and $100,000 for each of the second and third years (equal to the annual cap for 2017-18 and 2018-19, assuming the cap has not increased due to indexation by 2018.
Individuals must have a total superannuation balance of less than the general transfer balance cap ($1.6 million) as at 30 June 2017 to continue to access their bring forward cap in 2017-18, and as at 30 June 2018 to continue to access their bring forward cap in 2018-19. Individuals with a total superannuation balance that equals or exceeds $1.6 million on 30 June 2017 will have a non-concessional contributions cap of nil in the remaining years of their bring forward period, due to the application of the standard rules which apply a non‑concessional cap of nil for individuals with total superannuation balances over the general transfer balance cap.
Example:
Molly has a total superannuation balance of $200,000 as at 30 June 2016. In September 2016 she makes a non-concessional contribution of $250,000. This triggers her three year bring forward. From 1 July 2017, as the cap has been lowered, Molly would be able to make further non-concessional contributions of up to $130,000, taking her to the new bring forward amount of $380,000. Molly makes a non‑concessional contribution of $110,000 in 2017-18 and $20,000 in 2018-19.
Molly is less than 65 years old and has a total superannuation balance of $675,000 on 30 June 2019. She can then access the new bring forward period and contribute up to $300,000 in non-concessional contributions in 2019-20.
Where, the individual’s total superannuation balance is equal to or greater than the general transfer cap, the individual is not eligible for any non-concessional contributions cap for that specific financial year.
Following is a table that summarises these different bring forward cap and period positions:
| Total superannuation balance on 30 June 2017 | Non-concessional contributions cap for the first year | Bring forward period |
| Less than $1.4 million | $300,000 | 3 years |
| $1.4 million to less than $1.5 million | $200,000 | 2 years |
| $1.5 million to less than $1.6 million | $100,000 | No bring forward period, general non‑concessional cap applies |
| $1.6 million or more | Nil | N/A |
Changes to Government Co-Contributions:
Changes will be made to amend the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 so that government co-contributions will only be made in respect of a person for an income year if:
- the individual’s non-concessional contributions do not exceed their non-concessional contributions cap for that financial year and
- immediately before the start of that financial year, the individual’s total superannuation balance is less than the general transfer balance cap for that financial year.
