15-09-2016 04:42 PM - edited 15-09-2016 04:43 PM
As many of you might have heard, today the Government has announced some substantial changes to the super package that it revealed earlier this year in the 2016 budget.
Several changes have been announced, including scrapping the backdated, lifetime cap of $500,000 on non-concessional contributions.
You can read the full announcement here - "Even fairer, more flexible and sustainable superannuation"
Will this change your approach to running your SMSF?
on 16-09-2016 09:28 AM
No it won't but it'll be a relief to many.
I note that the replacement annual cap of $100k (down from $180k) will only be available until the fund reaches $1.6m, so I'm wondering how the $1.6m is to be guaged - simply last years balance plus YTD contributions (both concessional and non-concessional) at the time of the final NC contribution?
I await the final detail.
on 16-09-2016 11:45 AM - last edited on 16-09-2016 12:47 PM by olympia
Given the problems associated with a lifetime cap, I wasn't really surprised. Here are some of my thoughts about the announcement:
Removing the lifetime cap for non-concessional contributions and retaining annual caps for non-concessional contributions is a good move and will result in a simpler and more efficient approach for everyone. A potential limitation for the SMSF sector in relation to the requirement for the member's balance to be less than $1.6m, assessed 30 June prior to the year the contribution is made, is that valuations for some assets held by SMSFs are not readily available and may not be known until well after the new financial year has begun. The delay before SMSF investors know whether or not they can make a non-concessional contribution is, from a planning perspective, not ideal. However, this should only impact a small group of people.
Post 1 July 2017, individuals with superannuation balances approaching $1.4m, $1.5m or $1.6m should consider triggering the 3 year bring forward amount prior to their balance exceeding these thresholds. While we will need to wait for the legislation to be finalised before confirming the merits of this strategy, based on the fact sheets released with the Government announcement, it appears triggering the 3 year bring forward period just prior to a member's balance surpassing $1.4m, $1.5m or $1.6m could result in the member's balance legitimately exceeding $1.6m.
As a lower annual cap and bring forward amount will apply from 1 July 2017, individuals who have the capacity to do so should consider utilising the $540,000 bring forward amount before 1 July 2017. If you do trigger your bring forward entitlement before 1 July 2017 but don't fully utilise that entitlement by 1 July 2017, your remaining bring forward entitlement will be recalculated as at 1 July 2017. So if have already triggered your 3 year bring forward period it may be a good idea to ensure you have fully used up your bring forward entitlement by 1 July 2017.
With a revised start date of 1 July 2018, for catch-up concessional contributions, it appears the first opportunity to make a catch-up contribution will be in the 2019/20 financial year.
on 17-01-2017 12:48 PM
This backdown on the proposed non concessional contributions cap of $500,000 is good news for many people; especially those who wanted to put maximum amount in before the "door was closed' retrospectively
My Question is:
How exactly are the non concessional contributions post July 1 2017 treated in a retired Members Pension and accumulation fund where the Member's assets exceed $1.6 million cap and non concessional contributions (NCC's) already exceeded the proposed $500,000 as at June 30 2015?
Some business owner who sold up and retired earlier than 2010 were able to put substantial NC C's in and also re-contribute over years
Many analysts and SMSF advisors web-sites reported in December 2016 on the proposed and subsequently passed legisative changes to assist their clients
However; many have not updated their advice or report and still state that a non consessional contributions cap applies!
Has the ATO issued a ruling yet and Which legislation rule from ATO applies to this please?
I've been to the ATO website but nowhere can I find an example or ruling on this situation;
where a Members assets in SMSF exceed $1.6 million cap ( hence from July 1 2017 has to be artifically divided into pension and accumulation asset segments) and I'm guessing that the >$500,000 NCCs are divided in percentage between pension and accumulation segments
(Prior to 2016; I understood that non concessional contributions were treated tax wise as exempt from 15% tax and Medicare levy thus effectively free to non dependants just like they would be to a spouse or other dependent)
on 19-01-2017 09:14 AM
Thanks for your question and comments.
There have been many changes to the super rules in recent times, but one of the rules which hasn’t changed is the way the underlying tax components of a member’s superannuation benefit are taxed. Non-concessional contributions form part of a member’s tax free component and are paid out tax free when the super benefit is paid to the member. If the member has an accumulation or pension account in the fund which comprises both a tax free and taxable component, any super benefit they receive from these accounts must comprise both a tax free and taxable component in proportion to the tax free and taxable components they hold in these accounts. If a member chooses to transfer a portion of their pension account to an accumulation account within the fund (because for example their pension balance exceeds $1.6m as at 30 June 2017), the amount transferred must comprise a tax free and taxable component in proportion to the tax free and taxable component they hold in their pension account.
There is no need to identify non-concessional contributions which exceed $500,000. As you rightly point out the Government decided not to proceed with the proposed $500,000 cap on non-concessional contribution.
Please let me know if you have any further questions on this I can help with.