The annual concessional and non-concessional contribution cap limits (and the maximum bring-forward rule) will decrease from 1 July 2017. But there are still opportunities to maximise your super contributions now and into the future.
Current opportunities & transitional measures (2016/17 financial year)
Non-concessional contributions cap & bring-forward rule
The current $180,000 non-concessional contributions cap (where you contribute to super after tax), and the 3-year $540,000 bring-forward rule will remain until 30 June 2017.
This means that there is still time to utilise the larger amount of the bring-forward rule during the 2016/2017 financial year (assuming you are under the age of 65) and make up to $540,000 in non-concessional contribution’s prior to the 30 June 2017 deadline.
From 1 July 2017, the non-concessional contributions cap will drop to an annual limit of $100,000 and under the bring-forward rule you’ll be able to contribute up to $300,000 over three years. Therefore, there is a window before 30 June 17 where individuals can contribute a greater amount to super, if they have the necessary cashflow and it fits with their overall strategy.
Note that if you do trigger the bring forward rule this financial year and don’t fully use the $540,000 cap during the 2016/2017 year, then from 1 July 2017 the triggered bring-forward cap will fall to reflect the drop to the new annual $100,000 non-concessional contribution caps.
If you intend on utilising the bring forward rule for the 2016/17 financial year and 2017/18 financial years there is a transitional arrangement due to the drop in the non-concessional contribution limits. The example below shows how this works.
Thomas makes a non-concessional contribution of $220,000 before 30 June 2017, and plans to make a further non-concessional contribution in the 2017/18 financial year. Because of the transitional measures, he will only be able to contribute an additional $160,000 next financial year out of his after tax income. We have assumed here that Thomas is below the total superannuation balance threshold (see below). This is because, under the transitional measures, a triggered bring-forward cap in the 2017 financial year that carries over to the 2018 financial year is then subject to the non-concessional contribution annual limits applicable for each relevant year involved in the trigger.
$180,000 (16/17) + $100,000 (17/18) + $100,000 (18/19) = $380,000 bring-forward cap
$380,000 – $220,000 non-concessional contribution made (16/17) = $160,000 remaining (17/18)
The new total superannuation balance threshold means that from 1 July 2017, if your total superannuation balance exceeds $1.6 million, you’ll be unable to make further non-concessional contributions to your super.
Concessional contributions cap limit
The current concessional contribution cap (where a tax deduction is claimed for a super contribution) of $30,000 pa for individuals under 49 years of age and $35,000 pa for individuals 49 years and older remains until 30 June 2017. From 1 July 17 this drops to $25,000 pa, which means there may be room to make additional contributions via your existing salary sacrificing arrangements and other individual tax deductible contributions (for example, if self-employed) before 30 June 17 and utilise the higher cap.
Future opportunities (2017/18 financial year onwards)
Non-concessional contributions cap & bring-forward rule
From 1 July 2017 the annual non-concessional contributions cap will drop to $100,000 pa, and the maximum bring-forward rule will reduce to $300,000. However, this will be indexed by $10,000 increments, in line with the indexation of the concessional contributions cap (see below for further information).
If your superannuation balance is over $1.6 million you will no longer be eligible to make non-concessional contributions. If it’s below this threshold you can still make non-concessional contributions as long as you stay under the $1.6 million limit.
We have summarised in the table below eligibility for non-concessional contributions and the accessibility of the bring-forward rule as it relates to different superannuation balances.
NCC Cap, Bring-Forward Capacity & Total Super Balance (2017/18)
If your total superannuation balance on 30 June 2017 is...
Your non-concessional contributions cap for the first year will be...
Bring forward period
Less than $1.4 million
$1.4 million to less than $1.5 million
$1.5 million to less than $1.6 million
No bring forward period, general non-concessional contributions cap applies
$1.6 million or more
Reference: Australian Government (2016). Superannuation (Objective) Bill 2016 Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016. Explanatory Memorandum. Retrieved from: http://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r5760_ems_c4426d81-85bf-4546-acdb-474b07e00afb/upload_pdf/16172_173_174EM.pdf;fileType=application%2Fpdf
Please note: the size of your superannuation balance may also have implications for concessional contributions moving forward see below for more information.
Concessional Contributions cap limit & carry forward provision
From 1 July 2017, the annual concessional (before tax) contribution cap will drop to $25,000 regardless of your age. The cap will be indexed in line with average weekly ordinary time earnings, in increments of $2,500. Due to this reduction, it may be worthwhile to revisit your existing salary sacrificing to super arrangements and other individual tax deductible concessional contributions prior to 1 July 2017 to ensure you will stay within the new reduced annual cap.
From 1 July 2018, a new carry forward provision will apply for concessional contribution caps. This means that any unused portions of your concessional contribution caps can now be carried forward for up to five years as long as your total superannuation balance does not exceed $500,000. Once you exceed this threshold, the carry forward provision will no longer be available for you to use, however the $25,000 concessional contribution cap will still apply. The first year you will be entitled to carry forward unused amounts is the 2019-20 financial year. This will be beneficial for those who take career breaks or have lumpy income.
Superannuation is an important part of most people’s wealth creation and wealth preservation strategy. If you are planning on exploring super contributions, utilising the bring-forward rule and/or the carry forward provision, make sure you speak with us.
For more information on other upcoming changes to superannuation (post 30 June 2017), read our article, ‘Update: Superannuation reform package’.