Understanding the upcoming changes to super contribution limits
On 1 July 2017, some of the widest-sweeping reforms to super since 2007 will come into effect. These reforms aim to limit the amount of money people can contribute to super and transfer to the tax-free pension phase.
There has been a lot of focus on the complexities around the $1.6m limit on funds in pension phase, but the changes to contribution limits are also important to understand – especially given that some people may never again be able to contribute as much money super as they can this financial year.
To this end, from 1 July 2017 the cap on concessional contributions is dropping to $25,000 per annum – down from $35,000 for those over 50 and $30,000 for everyone else. This limits the ability to use super as a tax-effective vehicle to save for retirement. As a benefit however, the 10% maximum employment test regarding making personal concessional contributions is being removed, meaning anyone can claim a deduction for personal contributions they have made. This will provide flexibility for many individuals who cannot currently salary sacrifice but are also not eligible to make personal tax-deductible contributions. Note however the requirement to lodge a notice of intent to claim a tax deduction with the fund (commonly referred to as s290-170 notices) still exists – so clients must be aware of the consequences of rolling out or withdrawing their super monies before they lodge their notice.
Additionally, from 1 July 2018 it will be possible to ‘carry forward’ unused portions of your concessional contributions cap which accrue after this date. The maximum period that can be carried forward is the previous five financial years – allowing for a potential carry-forward of $125,000 if someone has not made any concessional contributions through that period.
After-tax contributions have also been limited. The current annual non-concessional contributions cap of $180,000 is being reduced to $100,000 from 1 July 2017. The ability to use the bring forward provisions will still apply for those under age 65, allowing for a maximum contribution of $300,000 averaged over a three year period, which is significantly less than the $540,000 available today.
On top of this, the non-concessional contributions cap for people with more than $1.6m in total super assets including all accumulation funds, pensions and ‘transfer values’ for capped defined benefit pensions paying a benefit will be nil. This measurement will be applied based on the value of all super and pension assets at 30 June and will determine the cap for contributions for the following year – so eligibility for clients close to the cap may vary year to year.
This limit also impacts the ability for those under 65 to bring forward future years’ contribution caps, to stop the case of a person accruing $1.59m in total super benefits and then triggering the full three year averaging. The table below shows the availability of the bring-forward for those under age 65.
|If your total super balance at |
30 June is between…
|Your maximum after-tax contribution for the |
following financial year is…
|Zero to $1.4m||$300,000 (current year plus bring forward two years)|
|$1.4m to $1.5m||$200,000 (current year plus bring forward one year)|
|$1.5m to $1.6m||$100,000 (current year only)|
Once within a bring-forward period, the above ‘tiering’ does not apply – however the ability to make a contribution within a future year is impacted by the $1.6m test.
It is important to note the changes to non-concessional contributions do not impact contributions which do not count towards the cap, such as personal concessional contributions, personal injury contributions and small business CGT contributions. However these contributions may count towards your future total super balance amounts and limit your ability to make further contributions in future years. Timing of contributions is becoming a bigger consideration with the introduction of annual balance tests which limit your ability to access contribution concessions.
On top of this, we have seen the re-introduction of the Low Income Super Contribution – the refund of up to $500 of tax paid on concessional contributions for those who have taxable income of less than $37,000 – as well as an increase in the spouse contribution threshold from $10,800 to $37,000. Both of these changes are more ‘quality of life’ changes which do not fundamentally change the contributions landscape, but open up the benefits of making contributions for lower income partners.