Part 4 Are you ready for the 1 July 2017 super changes?

Part 4: I want to trigger my 3-year bring forward NCC cap – how much can I contribute?

As part of the superannuation reforms announced in last year’s Federal Budget, both concessional and non-concessional contributions caps will be reduced significantly from 1 July 2017. In this month’s article, we will focus on the latter and how the non-concessional contributions (“NCC”) caps may be different for each individual, depending on the contribution history in the lead-up to 30 June 2017. For comprehensive guidance on this topic, consult professional accountants in Sydney.

Current rules – to 30 June 2017

Work test

For members that are aged 65 and less than age 74, the work test must be met before the NCC is made. To meet the work test, an individual must be gainfully employed for at least 40 hours over 30 consecutive days in each financial year in which contributions are made. Unpaid work, such as volunteer work, does not meet the definition of gainful employment.

Example 1:

I’m 64 (April 2017) and want to make an NCC of $540,000 before 30 June 2017. Can I do this?

Yes – provided you have not exceeded the annual cap in the 2015 and 2016 financial years.

Example 2:

I’m 64 now (April 2017) and would like to make an NCC of $200,000 before 30 June 2017 and previously made an NCC of $300,000 in the 2016 financial year. Can I do this?

Yes – you triggered your 2 years bring-forward cap in the 2016 financial year via the $300,000 NCC, leaving you with a cap of $240,000 in the 2017 financial year. As $200,000 is less than $240,000, and you can make an NCC of $200,000 by 30 June 2017.

Example 3:

I’m 65 now (April 2017) and would like to make an NCC of $200,000 before 30 June 2017 and previously made an NCC of $500,000 in the 2015 financial year. Can I do this?

No – you triggered your 2 years bring-forward cap in the 2015 financial year via the $500,000 NCC, leaving you with a remaining cap of $40,000 for the 2016 and 2017 financial years. Therefore, you are only eligible to contribute up to $40,000 by 30 June 2017, provided you have met the work test before contributing.

New rules – from 1 July 2017

From 1 July 2017, the NCC caps are significantly reduced, and one’s total superannuation balance will impact their ability to make these contributions.

Example 4:

Homer, aged 67, and Marge, aged 59, have their own SMSF, and as of 30 June 2017, their respective member balances are $1.50m and $2.15m as of 30 June 2017. What are their NCC caps for the 2018 financial year?

Homer’s NCC cap will be $100,000 and must meet the work test. Marge’s NCC cap will be $0.

Transitional Bring Forward rules – from 1 July 2017

As we advance, the transitional bring-forward rules are even more complex. To be eligible to make NCCs, the following eligibility criteria must be met:

• the member contributes more than the annual cap of $100,000;
• total super balance is less than the general transfer balance cap of $1.6m;
• the member was under the age of 65 at any time during the financial year;
• the bring forward was not triggered in the last 2 financial years; and
• the difference between the general transfer balance cap of $1.6m and the member’s total super balance is higher than the general NCC cap of $100,000.

The available bring forward cap for a member will be 2 or 3 times the annual cap, i.e. $380,000 or $460,000*.

* Note: whether a member will be able to use any unused bring forward amount in future years will depend on their total superannuation balance on 30 June of the year before they intend on using it. As such, the above transitional caps will differ for each individual.

Example 5:

Dorothy is 54 years old with a total super balance of $750,000. In December 2015, she made an NCC of $250,000 and no further NCCs during 2015/16 – as such, she triggered the current bring forward cap of $540,000.

Hence in Year 2 (2016/17), her available NCC cap will be $290,000 = $540,000 –$250,000 (year 1 contribution).

She then decided to make an NCC of $100,000 on 1 June 2017, which means her remaining NCC cap for Year 3 (2017/18) will be the transitional rules. i.e. in Year 3 (2017/18), her available NCC cap will be $110,000 = $460,000 (transitional cap) – $250,000 (Year 1 contribution) – $100,000 (Year 2 contribution)

Example 6:

Casper is 60 with a total super balance of $1m on 30 June 2017. During 2016/17, he made an NCC of $250,000 and triggered his bring forward.

Under the transitional rules, the available bring forward for the next 2 years (2017/18 and 2018/19) will be limited to $380,000 (i.e. $180,000 for 2016/17 + $100,000 for 2017/18 + $100,000 for 2018/19) less the $250,000 contribution made in 2016/17, being $130,000.

If the fund’s investments performed very well and Casper’s super balance then became $1.62m as of 30 June 2018, then he would be unable to make any further NCCs in 2018/19, despite having an amount of unused bring forward available.

This highlights that, though the transitional provisions determine the amount of the available bring forward for future years, it does not eliminate the requirement to have a total super balance of less than $1.6m on 30 June in the year before utilising the bring forward.

Conclusion

The NCC cap remains at $180,000 or $540,000 under the 3-year bring forward rules until 30 June 2017, leaving only a tiny window of opportunity of about 2.5 months to maximise these caps.

From 1 July 2017, the NCC caps are not as generous, and for the first time, total super balances will impact contribution eligibility.

Kreston Stanley Williamson Team

*Correct as of April 2017

Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.