Contributions
From 1 July 2017 a number of changes will come into effect which impact both a person’s ability to make certain types of contributions and the tax treatment of those contributions.
Non-concessional contribution cap changes
A number of significant changes have been made to the non-concessional contributions rules. These are summarised as follows.
Reduced non-concessional contributions cap
From 1 July 2017 the annual non-concessional contribution cap will be reduced from $180,000 to $100,000 for superannuation member with a total super balance of less than $1.6m.
Where a superannuation member’s total super balance is $1.6m or more, their non-concessional contribution cap will be reduced to nil (see below for more information on the $1.6m rule).
Indexation
The annual non-concessional contribution cap will be set at four times the concessional contribution cap. The concessional contribution cap, which will be reduced to $25,000 on 1 July 2017, is indexed in increments of $2,500. Therefore the non-concessional contributions cap will increase in line with increases in the concessional cap, in increments of $10,000.
Bring forward rule retained
The bring forward rule, which allows superannuation member to bring forward two future years of non-concessional contributions will be retained for those under age 65.
Therefore, taking into account the reduction in the non-concessional cap to $100,000 in 2017–18, superannuation member will be able to make non-concessional contributions of up to $300,000 in one year using the bring forward rule depending on their total superannuation balance.
Transitional rules
Where a superannuation member has triggered the bring forward rule in either the 2015–16 or 2016–17 financial year, but has not fully utilised their full $540,000 cap by 30 June 2017, their remaining cap will be reassessed to take into account the reduction in the non-concessional cap from 1 July 2017.
The adjusted bring forward amount will depend on when the superannuation member triggered the bring forward period, and is summarised in the following table:
2015–16 2016–17 2017–18 2018–19
$180,000 $180,000 $100,000
$460,000
$180,000 $100,000 $100,000
$380,000
A superannuation member’s remaining non-concessional contribution cap will be recalculated on 1 July 2017 based on the reduced non-concessional cap and the value of the superannuation member’s non-concessional contributions made during the bring forward period.
Non-concessional contributions cap reduced to nil where total super balance exceeds $1.6m
Where a superannuation member’s total super balance is greater than or equal to $1.6m at 30 June in a financial year, their non-concessional contribution cap in the following financial year will be nil. That is, these members will not be able to make any non-concessional contributions.
Calculation of total super balance
- A superannuation member’s total superannuation balance will generally be calculated as the sum of:
- the market value of all of their accumulation accounts
- the market value of all of their account based income streams (including transition to retirement income streams)
- the total value of all non-account based income streams included in their transfer balance account (see section on $1.6m transfer balance cap), and
- the value of any benefits that are not included in either their accumulation accounts or their transfer balance account as they have been rolled over and are in transit between funds on the day of measurement.
Where a superannuation member has contributed any structured settlements amounts, such as personal injury payments, to super, these amounts are excluded from the calculation of their total super balance.
The value of a superannuation member’s accruing interest in a defined benefit fund will also be included in their total super balance. Valuation rules will depend on the type of fund and the nature of the superannuation member’s interest.2 Where a superannuation member is an accruing member of as defined benefit fund, advisers should contact the fund regarding how it should be valued.
2 The value of such an interest will be valued according to the Income Tax Assessment Regulations where a valuation method exists (this will be relevant to accruing interests in public sector super schemes) or otherwise will be equal to the total super benefits that would become payable if the superannuation member voluntarily ceased the interest at that time.
Bring forward rule modified
Where a superannuation member is eligible to use the bring-forward rule but has a total super balance of $1.4m or more, they will only be able to bring forward the number of years of contributions that takes their balance to $1.6m.
This is summarised in the following table:
Total super balance at 30 June
prior to financial year Contribution and bring forward available
Less than $1.4 million 3 years ($300,000)
At least $1.4 million but less than $1.5 million 2 years ($200,000)
At least $1.5 million but less than $1.6 million 1 year ($100,000)
At least $1.6 million Nil
It is important to note that a superannuation member’s ability to make any non-concessional contributions during a bring forward period is retested each year based on the superannuation member’s total super balance as at the end of the previous financial year. This means that a superannuation member that triggers the bring forward rule but does not utilise their full non-concessional cap may have their remaining cap reduced to nil where their balance grows to over $1.6m.
Conversely, if a superannuation member’s total super balance falls to below $1.6 million as at 30 June in a financial year that is within a three year bring forward period, the superannuation member can utilise their remaining bring forward cap in the following year.
Changed eligibility requirements for Government co-contribution
In addition to the existing eligibility requirements, superannuation member will not be eligible for the Government co-contribution in a year if:
- their non-concessional contributions exceed their non-concessional contribution cap for that year, or
- their total superannuation balance was equal to or greater than $1.6m as at 30 June at the end of the previous financial year.
Concessional contribution cap changes
A number of changes have been legislated in relation to concessional contributions that will come into effect on 1 July 2017.
Reduced concessional contribution cap
The concessional contribution cap will be reduced to $25,000 from 1 July 2017 and will apply to everyone regardless of age.
The cap will be indexed to average weekly ordinary time earnings (AWOTE) in increments of $2,500.
Concessional contributions to constitutionally protected funds/unfunded DB schemes
Currently, concessional contributions to a constitutionally protected super fund do not count towards the concessional cap. In addition, concessional contributions to other unfunded defined benefit interests are generally Nil.
However from 1 July 2017, concessional contributions to constitutionally protected super funds and unfunded defined benefit schemes will count as concessional contributions.
In this case, modifications to the rules will ensure that it will not be possible for concessional contributions to these schemes to breach a superannuation member’s concessional cap.
However, concessional contributions to one of these schemes could result in a superannuation member’s concessional contributions to other types of super funds exceeding the concessional cap.
Division 293 income threshold reduced to $250,000
Currently, superannuation member whose income (defined as income for surcharge purposes) plus low tax contributions exceeds $300,000 are subject to Division 293 tax.
Division 293 tax (15%) applies to ‘taxable contributions’ (the amount of low tax contributions that sit over the $300,000 threshold).
From 1 July 2017, the income threshold will reduce from $300,000 to $250,000, meaning more superannuation member may be impacted by Division 293 tax going forward.
SG maximum earnings base limited to the concessional cap
From 1 July 2017, the SG maximum earnings base is effectively limited to the concessional contributions cap.
While unlikely to be relevant on 1 July 2017, differences in indexation between the SG maximum earnings base and the concessional cap may see this rule apply in future years.
This rule will prevent a superannuation member with one employer from having compulsory contributions that are excess concessional contributions. However, where a superannuation member has more than one employer, they can still breach the concessional cap with compulsory contributions as the maximum earnings base applies individually to each employer.
Personal deductible contributions changes
From 1 July 2017, anyone who is eligible to make voluntary super contributions will also be eligible to make personal concessional (tax-deductible) contributions.
Under current rules, the ability to make personal concessional contributions is limited to superannuation member who:
- have not ‘done anything’ to be considered an employee as defined by the Super Guarantee Administration Act 1992, or
- satisfy a 10% test which requires that less than 10% of their income is attributable to employment.
This change is welcome news for employees, who will have the flexibility to make concessional contributions either via salary sacrifice (if allowed by their employer) or personal tax-deductible contributions. This flexibility could assist with:
- end of year super top ups by making personal concessional contributions to use up any remaining concessional contribution cap
- deciding how to contribute bonuses, annual leave and long service leave
- contributing lump sum leave payments received upon termination of employment tax-effectively.
Contributions to some schemes not tax-deductible
superannuation member who make personal contributions to the following types of superannuation schemes will not be able to claim those contributions as a tax-deduction.
- A commonwealth public sector super scheme in which the superannuation member has a defined benefit interest
- An untaxed super scheme
- Other superannuation schemes specified in Regulations (none at present).
Carry-forward concessional contributions
From 1 July 2018, superannuation member with a total superannuation balance below $500,000 can carry forward any unused concessional cap amounts for up to five financial years.
This reform allows eligible superannuation member who do not use all of their concessional cap in a particular financial year, to carry forward their unused concessional cap amounts to future years.
Carry-forward concessional contributions may assist superannuation member with breaks in employment to make ‘catch-up’ contributions when they return to work.
To be eligible to make catch-up concessional contributions in a year a superannuation member must have a ‘total super balance’ of less than $500,000 as at 30 June at the end of the financial year immediately preceding the financial year in which the contribution is to be made.
The definition of ‘total superannuation balance’ is the same as that used for the non-concessional contribution cap (see above).
If a superannuation member is eligible to make catch up contributions they can add any previously unused concessional cap amounts from the previous five financial years to their current year’s concessional cap.
It is important to note that under this reform only unused concessional cap amounts from 2018–19 and future years can be carried forward.
Where an eligible superannuation member applies unused concessional cap amounts, they are applied starting with the earliest unused cap amounts first. This ensures that remaining unused cap amounts are preserved as long as possible.
Spouse contribution tax offset extended
The spouse contribution tax offset provides a tax offset of up to $540 for a contributing spouse where they make eligible spouse contributions of up to $3,000.
Under current rules the receiving spouse must have total income (assessable income, reportable fringe benefits amounts and reportable employer superannuation contributions) not exceeding $10,800 in order for the contributing spouse to receive the maximum offset.
Under the new rules the receiving spouse can have total income not exceeding $37,000 in order for the maximum offset to apply – a partial offset may apply where the receiving spouse has a total income of less than $40,000.
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