Boosting retirement savings with concessional contributions (CCs) and non-concessional contributions (NCCs) can help self-managed super fund (SMSF) members achieve their retirement goals. However, from 1 July 2017, changes to superannuation rules may impact a member’s ability to make contributions.
By having a detailed understanding of these changes you can help your clients maximise their contributions before 1 July 2017, and ensure they remain under relevant caps going forward.
In this article, we explore the upcoming changes to the CC and NCC rules and provide worked examples.
What’s changing from 1 July 2017?
The main changes taking effect include:
- a reduced annual CC cap
- a reduced annual NCC cap
- eligibility changes referring to a member’s total super balance and general transfer balance cap
- government co-contribution linked to the annual NCC cap and/or total super balance.
Reduced annual CC cap
The annual CC cap will be lowered to $25,000 (from $30,000) and the separate cap for those over 50 will be removed.
Reduced annual NCC cap
The annual NCC cap reduces to $100,000 (from $180,000) and the maximum bring forward cap is lowered to $300,000 (from $540,000).
NCC contribution eligibility: individuals under 65 are eligible to make NCCs at any time. Individuals who are 65 years of age or over at the time of contribution are eligible to make NCCs if they are not yet 75 and have met the work test.2,3
Individuals must have a total super balance less than the general transfer balance cap on 30 June of the previous financial year to be eligible to make NCCs in the relevant financial year. This criterion is to be met in addition to the existing age and work test requirements.
For 2017-18 financial year the general transfer balance cap is $1.6 million1. If an individual has a total super balance equal to or greater than $1.6 million at 30 June 2017 they will not be eligible to make NCCs in the 2017-18 financial year.
Calculating the total super balance
An individual’s total super balance at a particular time is the sum of the following:
- the accumulation phase value of super interests
- their transfer balance account (if any) adjusted, but not below zero, for any changes in the balance of any account based income streams, disregarding debits for any structured settlement payment
- any rolled over super benefits not reflected in their accumulation phase value or balance of their transfer balance account.
This amount is then reduced by any personal injury super contributions.
Government co-contribution changes
Individuals will no longer be eligible for the government co-contribution in an income year if:
- their NCCs exceed their NCC cap for that year, or,
- if at 30 June of the previous financial year, their total super balance equals or exceeds the general transfer balance cap.
Currently, the NCC cap and total super balances do not affect eligibility for the government co-contribution.
Changes to bring forward arrangements
From 1 July 2017, the current bring forward amount of $540,000 will drop to $300,000. Individuals with a bring forward arrangement commencing in 2016-17 financial year are entitled to make NCCs of up to $540,000 before 1 July 2017. This provides a final opportunity to take advantage of the higher bring forward cap before the new rules take effect.
In addition, the NCC cap amount that can be brought forward from 1 July 2017 – and whether it is a two or three year bring forward period – will depend on the individual’s total super balance. This is determined at 30 June of the previous financial year in which the bring forward period commenced.
Also, where the bring forward was triggered in a financial year prior to 2017-18, transitional amounts will apply. The impact of the timing of the bring forward is explored further below.
Triggering the bring forward arrangement after 1 July 2017
For 2017-18 financial year onwards, to access the non-concessional bring forward arrangement:
- the individual must be under 65 years of age for at least one day during the triggering year (the first year)
- they must contribute more than the annual cap ($100,000 for the 2017-18 financial year)
- the difference between the general transfer balance cap ($1.6 million for the 2017-18 financial year) and their total super balance must be greater than the general non-concessional contributions cap ($100,000 for the 2017-18 financial year) at 30 June of the previous financial year.
This means the remaining cap amount for years two or three of a bring forward arrangement is reduced to nil, if the total super balance is greater than or equal to the general transfer balance cap at the end of 30 June of the previous financial year (see table 1).
Calculating the bring forward amount:
- If the difference between the general transfer balance cap and the individual’s total superannuation balance is between one and two times the general non-concessional contributions cap for the first year – the bring forward amount is twice the general non-concessional contributions cap over a two year period.
- If the difference between the general transfer balance cap and the individual’s total superannuation balance is greater than two times the general non-concessional contributions cap for the first year – the bring forward amount is three times the general non-concessional contributions cap over a three year period.
Table 1 Bring forward provision for 2017-18 financial year
|Total superannuation balance on 30 June 2017
||Non-concessional contributions cap for the first year
||Bring forward period
|Less than $1.4 million
|Greater than or equal to $1.4m and less than $1.5 million
|Greater than or equal to $1.5m and less than $1.6 million
||No bring forward period, general non-concessional contributions cap applies
|Greater than or equal to $1.6 million
Example 1 – bring forward period of 3 years
Raj is a 62 year old retiree with a total super balance at 30 June 2017 of $500,000. In the 2017-18 financial year he decides to make a NCC of $200,000. He is able to make a NCC and access the bring forward provision in the 2017-18 financial year because:
- he was aged 64 or under during the first year and his total super balance is less than $1.6 million
- the difference between the general transfer balance cap ($1.6 million) and his total super balance ($500,000) is greater than the general NCC cap ($100,000)
- he does not currently have a bring forward period due to an earlier application of the bring forward arrangement.
As his total super balance on 30 June 2017 was under $1.4 million, his total bring forward cap for the next three years is $300,000 (see Table 1). Raj will only be able to contribute a total of $100,000 ($300,000 - $200,000) during the 2018-19 and/or 2019-20 financial year on the condition his total superannuation balance at the end of 30 June 2018 and 30 June 2019 remains below $1.6 million.
Triggering the bring forward arrangement before 1 July 2017
For members who trigger the bring forward arrangement in 2015-16 or 2016-17 financial year and have no intention of making additional NCCs in 2017-18 or 2018-19, they are entitled to make NCCs of up to $540,000 prior to 1 July 2017. Members triggering the bring forward arrangement before 1 July 2017, who have not fully utilised their bring forward NCC cap prior to 30 June 2017, are afforded ‘transitional arrangements’. In these cases, the member’s bring forward NCC cap will be reassessed on 1 July 2017 to reflect the new annual cap.
During the transitional periods (highlighted in the table below), contributions made before 1 July 2017 will affect total NCC capacity over the following two years. Where transitional arrangements apply, members remain subject to changes in contribution eligibility from 1 July 2017 onwards.
Table 2 Transitional bring forward caps for the period 2014-15 to 2019-20.
|2014 - 15
|0 to $540,000
|0 to $460,000
|0 to $380,000
|0 to $300,000
Example 2 – bring forward with no eligibility in 2017-18
Sarah is 63 years old and will have a total superannuation balance of $1.55 million on 30 June 2017. She has had $600,000 from her uncle’s estate in a cash management account for the last few months. She has not used the bring forward arrangement previously and would like to boost her retirement savings by making NCCs where possible.
Upon speaking to her adviser, she completes a $540,000 NCC in April 2017, recognising she will not be able to make additional NCCs in 2017-18 or 2018-19.
By making $540,000 NCC under the bring forward arrangement before 30 June 2017, Sarah is able to use a higher bring forward cap than if she had waited until after 1 July 2017. If she’d waited until after 1 July 2017, the difference between the general transfer balance cap ($1.6 million) and her total super balance ($1.55 million) would be less than the general NCC ($100,000). Therefore, Sarah could only make $100,000 of NCCs in the 2017-18 financial year and she would not be eligible to bring forward any future NCCs.
Example 3 – Transitional arrangements when bring forward was triggered in 2015-16
Sue made a NCC of $200,000 in 2015-16 (the first year). The NCC cap rules applying in 2015-16 financial year, gave her a cap for the first year of $540,000.
In the 2016-17 financial year (second year), her remaining cap was $340,000 ($540,000 – $200,000). She made a further $100,000 of NCC in that financial year.
As Sue’s bring forward period started in the 2015-16 financial year, the standard rule for calculating her third year cap in the 2017-18 financial year is modified by the transitional bring forward NCC rules.
As Sue’s total super balance on 30 June 2017 is $550,000, she is eligible in 2017-18 for the transitional bring forward rules to apply.
Her cap is calculated by taking the amended bring forward cap of $460,000 less her contributions for the first and second year ($200,000 + $100,000). Her cap for the 2017-18 financial year is $160,000.
Example 4 – Transitional arrangements when bring forward is triggered in 2016-17
Kristof is 55 years old and has a total super balance of $200,000 at 30 June 2016.
In September 2016, he made a NCC of $250,000, triggering the bring forward arrangements. From 1 July 2017 to 30 June 2019, Kristof would be able to make further NCCs of $130,000 given the lowered transitional bring forward cap of $380,000. Kristof can access a new bring forward period and contribute up to $300,000 in NCC from 1 July 2019 if he wishes.
Knowledge of the bring forward arrangements, including any transitional arrangements and the importance of a member’s total superannuation balance and the general transfer balance cap can help aid clients in making their contributions and ensure they remain under the relevant caps.
For more information on the new CC or NCC rules, please contact Accurium on 1800 203 123.
1Indexed in $100,000 increments in line with the Consumer Price Index (CPI).
2Contribution can be made by member and must be received by trustee no later than 28 days after the end of the month that the member turns 75.
3Gainfully employed for at least 40 hours over 30 consecutive days during the financial year.