“Transitional arrangements” will apply to SMSFs for the $500,000 lifetime non-concessional contributions cap, the Treasurer Scott Morrison has said in a letter to the SMSF Owners’ Alliance.
The 2016 Budget included a $500,000 lifetime non-concessional contributions cap. This raised a number of concerns, including from the SMSF sector that it could mean some funds not being able to meet existing obligations.
The Treasurer has now said there will be ‘transitional arrangements’ for SMSFs. In a letter to the SMSF Owners’ Alliance (SMSFOA) he said: “The Government has been asked to provide guidance on how this measure will apply to a very small number of individuals using sophisticated financing techniques for the purchase of assets within a self-managed superannuation fund.”
These “financing techniques” include where an SMSF has entered into a contract to purchase an asset, including using a LRBA, prior to 7.30pm AEST on the 3rd of May (the time of the Budget) and the members had planned to make non-concessional contributions to meet the purchase price.
“In such circumstances, transitional provisions will apply to allow further non-concessional contributions to be made only to the extent necessary to complete the Pre-Existing Contract, taking into account existing financing arrangements,” says the Treasurer in the letter.
“The quantum of the additional contributions must also be within the constraints of the non-concessional contributions cap rules that existed immediately prior to the Commencement Date. These additional non-concessional contributions will be counted towards the lifetime non-concessional cap, but will not result in an individual being in breach of the lifetime non-concessional cap.”
Transition arrangements will also apply to SMSFs with existing LRBAs, to allow them to put these borrowings on an arm’s length basis.
“Members of SMSFs with existing borrowings will be permitted to make further non-concessional contributions to the extent necessary to ensure the legal obligations of SMSFs that existed on or before the Commencement Date are met or to comply with the Australian Taxation Office (ATO) Practice Compliance Guideline 2016/5 (PCG 2016/5).”
“These additional non-concessional contributions will be counted towards the lifetime non-concessional cap, but will not result in a breach of the lifetime non-concessional cap, until 31 January 2017. Once legislated, this deadline will be extended only in exceptional circumstances and at the discretion of the Commissioner of Taxation.”
“This transitional period allows those with no other practical option than to make further non-concessional contributions to meet legal obligations that existed at the Commencement Date or to comply with PCG 2016/5 sufficient time to rearrange their affairs such that they do not breach the cap as a result of contributions made after the Commencement Date.”
“The date of 31 January 2017 is consistent with the deadline set by the ATO in relation to PCG 2016/5, which provides safe harbour guidance for SMSFs who have borrowed from related parties under a LRBA.”
“I trust this information provides you and the very small number of individuals to whom the aforementioned proposed treatment applies the necessary certainty going forward,” said Mr Morrison.
The full letter can be found here.
The SMSFOA welcomed the announcement by the Treasurer, though still has other concerns.
“This decision addresses one of the concerns raised by SMSF Owners and others about the impact of the new $500,000 cap. Other concerns remain and we intend to pursue them with the Government after the election.”
The lifetime non-concessional cap is a Coalition policy, though Labor’s position on it is unclear. Members of the Labor party have previously objected to the, arguably, retrospective nature of the change. However in the final week of the campaign Labor included the full amount of the savings from the 2016 Budget super changes in their costings and said there would be a review of the policies if they won government.