In a recent press release the Treasurer, Scott Morrison, released a number of changes to the Government’s three key federal budget proposals.
For some, perhaps the most significant changes to the earlier proposals were that the Government will now NOT be proceeding with the proposed $500,000 lifetime non-concessional contribution (NCC) limit.
Instead they have proposed reducing the existing Non-Concessional Contribution (NCC) limits from 1 July 2017.
If legislated, this proposal will impact many accumulators and very early pre-retirees.
The government has announced a number of changes to some of the superannuation reform proposals first announced as part of the 2016 Federal Budget. Broadly, the changes announced include;
At the time of writing, draft legislation had not been released and as a result available details are limited. However, some detail has been provided through a series of fact sheets. A summary of some of the key details is provided below.
For the sake of completeness, it should be noted that at this time no additional details have been released with respect to a number of other proposals. This includes the proposed;
The government will not be proceeding with the proposed $500,000 lifetime NCC limit announced in the 2016 Federal Budget.
Instead, the government has announced that from 1 July 2017, the annual non-concessional contributions cap will be lowered to $100,000 from the current $180,000. Additional (and is currently the case), individuals under age 65 will continue to be eligible to bring forward three years of non-concessional contributions (i.e. allowing NCCs of up to $300,000 using the bring-forward rules from 1 July 2017).
However, the government has also announced that from 1 July 2017, where an individual's total superannuation balance is above $1.6 million they will no longer be eligible to make non-concessional contributions. That is, if an individual's balance at the start of the financial year (the contribution year) is more than $1.6 million they will not be able to make any further non-concessional contributions.
Restrictions will also apply to an individual's ability to trigger the bring-forward rules in a year where their NCC contribution will take them over the $1.6 million limit. Precise details of how these restrictions will operate have not yet been released.
Importantly, as a result of today's announcement, the existing rules up to 30 June 2017 remain unchanged.
Accordingly, the NCC limit for the 2016/17 year remains @$180,000 (or $540,000 where eligible to utilise the bring-forward rules). Further, for the current financial year, these limits are available regardless of an individual's total superannuation balance.
Note: Transitional rules have been flagged in relation to people who are still in a previously triggered bring-forward period and have unused amounts at the end of the current financial year (e.g. say only $250,000 out of a possible $540,000 NCC had been contributed by 30 June 2017). The precise details surrounding these transitional arrangements have not yet been released.
The government had originally proposed that individuals with superannuation balances of $500,000 or less would be able to commence accruing unused concessional cap amounts from 1 July 2017, enabling them to carry these unused amounts forward for a maximum five years.
As part of this recent announcement, the commencement date for this measure has been deferred to 1 July 2018. As a result, individuals will only be able to start accruing unused concessional cap amounts arising from the 2018/19 year onwards.
During the 2016 Federal Budget announcement, the government had proposed to abolish the work test requirement for superannuation contributions made by, or on behalf of, individuals aged 65 - 74 (inclusive) from 1 July 2017.
As part of the latest announcements, the government has indicated that it will no longer be proceeding with this previously proposed measure.
As such, the current work test requirements, used to determine the eligibility for an individual to make superannuation contributions once they reach age 65, will continue to apply (i.e. an individual who is aged 65 - 74 (inclusive) will need to have completed 40 hours of gainful employment, over a consecutive 30-day period during the financial year in which the contribution is being made, before they are eligible to make a contribution).
Financial Keys has already started to consider the impact of the government’s latest proposals and while we appreciate that these are no more law than those announced on Budget night, we would expect that these more recent announcements are more likely to be passed, but not until early in 2017.
Between now and well before the proposed commencement dates, Financial Keys will speak with those whom we believe will be impacted, individually and provide you with our recommendations to take advantage of these changes – again, once they are legislated.
If you should have any queries in the interim, then of course we welcome your contact.
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