The Government has released the third tranche of draft superannuation legislation. This, likely final, tranche includes changes to the non-concessional contributions cap.
“This tranche of Exposure Draft legislation includes legislative amendments to better target superannuation tax concessions by reducing the annual non-concessional contributions cap to $100,000 and restricting access to individuals with superannuation balances below $1.6 million,” said Treasurer Scott Morrison.
The lower non-concessional contributions cap is intended to apply from 1 July 2017. The draft Bill also “introduces a requirement that an individual must have a total superannuation balance each year of less than the general transfer balance cap ($1.6 million in the 2017-18 financial year) to be eligible to make non-concessional contributions up to the cap”.
Changes are also made to the non-concessional three-year bring forward arrangement, seemingly to accommodate the restriction on contributions once super balances reach the general Transfer Balance Cap.
“Individuals with a total superannuation balance that equals or exceeds $1.6 million on 30 June 2017 will have a non-concessional contributions cap of nil in the remaining years of their bring forward period, due to the application of the standard rules which apply a non-concessional cap of nil for individuals with total superannuation balances over the general transfer balance cap,” says the Explanatory Materials (EM) to the draft Bill.
Also, where the three year bring forward period was triggered in 2015/16, the non-concessional contributions cap in the first and second year will be “set by the rules that applied to those financial years”. But the cap in the third year, 2017/18, will be “applied as if the first year cap had been $460,000” – which is equal to two years at $180,000 and one at $100,000.
The EM includes the following example:
Henry made a non-concessional contribution to his superannuation fund of $200,000 in 2015-16 (the first year). Under the non-concessional cap rules applying to 2015-16, he exceeded his yearly cap of $180,000 and triggered the bring forward rules. These rules gave him a cap for the first year of $540,000.
In 2016-17 (the second year), Henry’s cap was $340,000 ($540,000 – $200,000). He made a further $100,000 of non-concessional contributions in that financial year.
As Henry’s bring forward period started in 2015-16, the standard rule for calculating his third year cap in 2017-18 will be modified by the transitional bring forward non-concessional contributions cap rules.
As Henry is eligible in 2017-18 for the transitional cap rules to apply, his cap is calculated by taking the amended bring forward cap of $460,000 less his contributions in years 1 and 2 ($200,000 plus $100,000). His cap for the 2017-18 year is therefore $160,000.
Similar rules would apply where the bring forward cap is triggered in 2016/17, but only the cap in the first year will be “set by the rules that applied to that financial year”.
“The second and third year caps, for 2017-18 and 2018-19, will be determined under the standard calculation of those caps…, applied as if the first year cap had been $380,000,” says the EM, noting that $380,000 is one year at $180,000 plus two years at $100,000.
Changes are also made to the bring forward rules triggered in 2017/18 and future years for people who have superannuation balances close to the general Transfer Balance Cap. “The amount of non-concessional contributions cap an individual may bring forward to a financial year and the bring forward period depends on their total superannuation balance immediately before that financial year,” says the EM.
Additionally, the draft Bill includes a provision which “prevents payment of the government co-contribution in respect of an individual who is not eligible to make non-concessional contributions”.
The Treasurer said: “The Government remains on track to have the superannuation reform measures introduced into the Parliament before the end of the year. This will provide taxpayers with certainty so they can make decisions about their savings and superannuation with confidence. Introducing the legislation also provides superannuation trustees with the certainty they need to implement these reforms. With the support of the Senate, there will be no impediment to this occurring.”
The Government is allowing only a week for public consultations on the draft Bill, which was released late on Friday afternoon. Less than two weeks were allowed for public consultation on the second tranche of draft legislation.
The Government has released a fact sheet on the changes – Superannuation Reform: Annual non-concessional contributions cap.