Non-concessional contributions are those contributions that are made with after tax money. These generally include personal after tax contributions and Government co-contributions.
What are the changes?
- Lifetime non-concessional contribution cap limit of $500,000
- Removal of existing annual non-concessional cap and bring forward provisions
- Removal of work test requirements for contributions made between the ages of 65 and 74
Lifetime non-concessional cap limit of $500,000
Currently the non-concessional contribution cap is $180,000 per year. Where a person is under 65, they have the ability to bring forward two years contributions and has the ability to contribute up of $540,000 in one year.
From 7:30pm AEST on 3 May 2016, a new lifetime cap limit of $500,000 will apply to all non-concessional contributions. All of your non-concessional contributions made from 1 July 2007 will be measured against this new cap.
For those who have already contributed more than $500,000, you must not make any additional non concessional contributions. However, you will not be penalised or forced to withdraw amounts from super if you had exceeded this new cap as a result of non-concessional contributions. For those
that exceed the cap from 7:30pm AEST 3 May 2016, excess contributions will need to be removed or will be subject to penalty tax.
Frank is 57 has progressively been making non-concessional contributions to his super account since 1 July 2007. To date he has contributed $350,000. As a result, he has $150,000 remaining in his lifetime non-concessional cap limit.
Removal of existing annual non-concessional contribution caps and bring forward provisions
With the new lifetime cap applying to non-concessional contributions from 7:30pm on 3 May 2017, the existing rules around non-concessional caps are no longer needed. As a result, the annual non-concessional cap of $180,000 ceases to apply, as does the ability to bring forward the annual caps for the next two years.
All that now applies is measuring all non-concessional contributions against the new lifetime limit.
Removal of work test requirements for contributing between the ages of 65 and 74
Consistent with changes that apply for concessional contributions between the ages of 65 and 74, from 1 July 2017 there will no longer be a requirement to meet a work test in order to make a non-concessional contribution to super between these ages. This change is significant as many people are often only able to make large voluntary contributions around retirement age and may not be able (or willing) to find employment to make the contribution.
Joan and Fred are both aged 66 and have modest superannuation balances. They have only been able to make non-concessional contributions of $90,000 and $60,000 respectively over the last 10 years.
As their children have now grown up and left home, Joan and Fred decide to sell their current home and downsize for a more comfortable and manageable retirement. In doing so, they have managed to free up $700,000 of capital from the sale of their existing home that is needed for the purchase of their new property. Even though they aren’t working, they will now be able to contribute these finds into their respective super accounts, provided neither exceeds the new $500,000 lifetime limit.
The budget proposals in relation to non-concessional contributions are just that, proposals. To ensure you get the right advice for your situation, please call us on (02) 9894 1844.
Disclaimer: This information was prepared by Magnitude Group Pty Ltd, ABN 54 086 266 202 and AFSL 221557 and is current as at 04 May 2016. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This Information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, neither Westpac Group nor its group of companies accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement. The taxation position described in this Federal Budget update 2016 is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.