Contributions / Federal Budget / SMSF

Use it or lose it!

use-it-or-lose-it

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).

 

ncc-opportunity

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 ($) Amount ($)
2015-16 $ – $180,000
2016-17 $180,000 $180,000
2017-18 $100,000 $100,000
2018-19 $100,000 $ –
Total allowable NCC amount $380,000 $460,000
NCC amount used ($250,000) ($250,000)
Remaining NCC amount $130,000 $210,000
Where Holly triggers the bring forward rule in 2015-16 year, she will have $210,000 remaining as available if not utilised by 30 June 2017. Where the bring forward rule was triggered in the current income year (2016-17) and the entire bring forward was not utilised before 30 June 2017, the transitional arrangements will reduce the available NCC amount for the following two income years (2017-19) to a maximum of $130,000.

 

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.

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