With the Federal Government buckling under the pressure of the political backlash with the $500,000 lifetime non concessional contribution cap, we will now operate from 1 July 2017 in a more rationale contribution framework – a $100,000 annual NCC limit, subject to a member not having an account balance above $1.6 million at the start of each financial year.
Importantly, the decision to align the non-concessional contribution measures to 1 July 2017 with all other proposed superannuation measures does highlight the importance of reviewing an individual’s non-concessional contributions before the reduced NCC cap is introduced. This applies both in the context of utilising the higher $180,000/$540,000 cap for 2016-17, but also for those who have an account balance above $1.6 million that will effectively be ineligible to make further non-concessional contributions post 1 July 2017 (as outlined in the diagram below).
Triggering the bring forward
Treasury has provided guidance within superannuation fact sheet #4 that transitional arrangements will apply to individuals who have triggered the bring forward rule in the 2015-16 or 2016-17 financial years.
If an individual has not fully utilised their NCC bring forward before 1 July 2017, the remaining bring forward amount will be re-assessed on 1 July 2017 to reflect the new annual caps.
To understand how this works, let’s take a look at the following example:
Example – utilising the NCC cap
Holly (50) has a superannuation balance of $200,000. and makes a $250,000 non-concessional contribution. This triggers the three-year bring forward rule for her, which is currently $540,000 (2016-17). However, as the cap has been lowered from 1 July 2017, transitional arrangements will apply to the remaining NCC cap available.
Let’s take a look at the adjusted NCC cap, subject to whether Holly made the non-concessional contribution in 2015-16 or 2016-17 financial years:
|Income Year||Amount ($)||Amount ($)|
|Total allowable NCC amount||$380,000||$460,000|
|NCC amount used||($250,000)||($250,000)|
|Remaining NCC amount||$130,000||$210,000|
Above $1.6m eligibility threshold
Making use of the available non-concessional contribution caps in the 2016-17 income year is even more vital for individuals with an account balance that exceeds $1.6 million as this arguably presents the last opportunity to either make contributions into superannuation or utilise strategies such as a recontribution strategy.
It would appear based on the information provided in the Treasury fact sheets that a new sub-regulation will be added to SISR 7.04(3) that will not allow a regulated super fund to accept fund-capped contributions in a financial year where a member has an account balance in excess of $1.6 million at the prior 30 June.
When considering these issues, there appears to be a number of opportunities and key decisions to be made in the current financial year around the utilisation of the non-concessional contribution cap, its interaction with the $1.6m eligibility threshold and balance transfer cap.
It is all these things that we will be exploring a breaking down to develop key strategies in FY2017 at the SMSF Day events in November 2016. Early bird pricing is available until 30 September.