From 1 July 2017, many of the 2016 Federal Budget super reforms will take place, including the reduction of both the annual concessional and non-concessional contribution caps.
Concessional contributions include employer contributions and salary sacrifice amounts. Personal contributions claimed as a personal super contribution deduction also count as concessional contributions.
The concessional (pre-tax) contributions cap will be lowered to $25,000 for everyone. Previously, those aged 50 years and older could contribute up to $35,000 and $30,000 for everyone else.
Individuals who wish to make extra concessional contributions before 1 July will need to check what concessional contributions have been made to all their super funds from 1 July 2016 and arrange for the additional concessional contributions (up to their age cap) to be paid to their super before 30 June 2017.
A new super rule will be introduced effective from 1 July 2018 which will allow individuals with a total super balance of less than $500,000 at the end of 30 June of the previous year to ‘carry-forward’ their unused concessional contributions cap. This allows individuals to access their unused cap space on a rolling basis for five years.
For example, in 2018-19, Tom makes $10,000 in concessional contributions, leaving an unused amount of concessional contribution cap of $15,000. Tom can carry forward for up to five years to increase his concessional contribution cap. In 2019-20, in addition to his normal $25,000 concessional cap, Tom can use the $15,000 of unused cap from the previous year. This means Tom’s total concessional cap for 2019-20 is $40,000.
Non-concessional contributions include personal contributions for which you do not claim as a tax deduction. All non-concessional contributions made to all your super funds are added together and count towards the cap.
The annual non-concessional (after-tax) contribution cap will be reduced from $180,000 to $100,000. Those aged between 65 and 74 years old can still access this cap, provided they satisfy the work test.
If an individual has a super balance greater or equal to the general transfer balance cap for the year ($1.6 million for the 2017/18 financial year) as at 30 June of the previous financial year (e.g. 30 June 2016) they are ineligible to make non-concessional contributions in the following year. Any non-concessional contributions made in the following year will be treated as excess contributions.
For those under 65 years, you can still bring forward three years worth of non-concessional contributions. However, as the non-concessional cap has lowered to $100,000, you will only be able to bring forward $300,000 in a single year from 1 July 2017 onwards.
To access the non-concessional bring forward arrangement for 2017-18, you must be under 65 years for one day during the first year and you must have a total super balance less than $1.5 million.
The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for a financial year if your total super balance is greater than or equal to the general transfer cap at the end of 30 June of the previous financial year.
Transitional arrangements will apply to those individuals who have triggered the bring-forward period in the 2015-16 or 2016-17 financial years but have not fully used their bring-forward before 1 July 2017.