With the coalition finally backing down on the retrospective change to non-concessional super contributions, and the more reasonable limit that will apply from July 1, 2017, clients will need to be advised of their options sooner rather than later.
The original $500,000 lifetime limit on non-concessional contributions, that was to apply from May 3, 2016, will now be replaced by a new limit that relates to the value of a person’s superannuation.
Under this new limit, no further non-concessional contributions can be made by someone once their superannuation balance, measured at June 30 of the previous financial year, exceeds $1.6 million. This new limit, and the way that the bring forward rule will work with regard to the reduced maximum non-concessional contribution limit of $100,000, creates the urgency for clients to act before June 30, 2017.
Any clients that have not exceeded their non-concessional contribution limits in the three previous financial years, and are under 65, can make a non-concessional contribution for the 2017 financial year of $380,000.
If the bring forward non-concessional contributions rule was triggered during the 2016 financial year the maximum contribution that can be made will be $460,000. This is made up of the $180,000 non-concessional contribution limits for the 2016 and 2017 financial years, plus the $100,000 limit that will apply from July 1, 2017.
Impact for small business owners
The recognition that small business owners can be disadvantaged with regard to superannuation remains, with the retention of the $1.415 million non-concessional contribution limit. This limit applies to capital gains made on the sale of a small business when the owner or owners retire.
The restriction on making further non-concessional contributions once a superannuation balance exceeds $1.6 million, for clients that have superannuation balances close to this limit as at June 30, 2016, is another reason for letting clients know about the impact of the proposed changes.
This is especially the case where a client had been advised to make the maximum non-concessional contribution limit for the 2017 financial year, then use the bring forward rule after July 1, 2017 and make a further maximum non-concessional contribution.
Where a non-concessional contribution of $180,000 made during the 2017 year would result in a person’s superannuation balance exceeding $1.6 million at June 30, 2017, a non-concessional contribution of $380,000 should be made even though the legislation may not be passed.
If the coalition’s superannuation changes do not become legislation, and a $380,000 non-concessional contribution is made during the 2017 financial year, this will still mean that person can make a further non-concessional contribution of $160,000 up until June 30, 2019.
‘Work test’ to remain
To counterbalance the hit to the federal budget of backing down on the retrospective $500,000 lifetime non-concessional contribution limit, the coalition has dropped its proposed reform to the work test for people aged 65 and over. The work test will remain, which means any retired clients, who will turn 65 during the 2017 financial year, should make a non-concessional contribution before they turn 65.
There is one of the coalition’s superannuation policies that mean clients can delay making a super contribution until after June 30, 2017. This is the removal of the tests related to tax-deductible personal super contributions.
Under the current rules, tax-deductible personal super contributions can only be made by someone who does not receive the benefit of employer contributions, or has total employment income of less than 10 per cent of the total assessable income. If the proposed policy becomes legislation, anyone will be able to make tax-deductible super contributions up to the relevant limit from July 1, 2017.
