Your 2016/2017 guide to non-concessional (after-tax) contributions

SUPER ALERT! On 3 May 2016, the federal government announced an IMMEDIATE cut to the non-concessional contributions cap, including a cessation of the bring-forward rule (explained later in the article). Although this change has immediate effect, from 3 May 2016 (7.30pm), it is still subject to yet-to-be created legislation and also subject to the Coalition convincing its backbenchers and the independent MPs that this proposed change to the after-tax contributions cap is fair and not retrospective (good luck with that!).

Subject to legislation, Australians now have a lifetime non-concessional contributions cap of $500,000, rather than the annual cap of $180,000 (and the bring-forward rule allowing up to $540,000 over a 3-year period for under-65s is no longer available). Note that the annual non-concessional contributions cap, which was applicable in previous financial years and for most of the 2015/2016 year, no longer applies from 3 May 2016 (subject to legislation).

Note: We will update this article regularly when additional details of this proposed new policy become available. The super industry and many Liberal MPs are opposed to this measure, so the final details may change. Continue reading for the latest information.

Non-concessional superannuation contributions are more popularly known as after-tax contributions. You may even hear them called ‘undeducted’ contributions. Such super contributions are subject to a contributions cap, which sets a limit on the amount of non-concessional (after-tax) contributions that you can make over your lifetime (subject to legislation). The current legislated rules impose an annual cap of $180,000 for one year (1 July through to 30 June), but the Coalition government plans to introduce a lifetime cap of $500,000 taking effect from 3 May 2016, and backdating the cap to 1 July 2007.

For your reference, the non-concessional contributions cap for most of the 2015/2016 year (1 July 2015 to 7.29pm on 3 May 2016) is $180,000, which was the same limit that applied for the 2014/2015 year. (See table later in this article for contribution limits for the past 8 years).

Note: If you were under the age of 65, you may have been able to contribute up to $540,000 in non-concessional contributions for the 2015/2016 year (until 7.30 pm on 3 May 2016), and likewise this was available for the 2014/2015 year. This opportunity to take advantage of the non-concessional cap for future years, in the current financial year, was known as the bring-forward rule (see later in this article for an explanation of the bring-forward rule). Under the proposed rules taking effect from 3 May 2016, the bring-forward rule is no longer available.

From 7.30 pm on 3 May 2016, the government announced the $500,000 lifetime cap, and all non-concessional contributions made since 1 July 2007 would be included in that lifetime cap. If you have made more than $500,000 in non-concessional contributions (NCC) from 1 July 2007 through to 7.30 pm, 3 May 2016, then you will be deemed not to exceed your lifetime cap. If you then make further NCCs however, post 3 May 2016, you will exceed your lifetime cap and the extra contributions will be subject to the excess contributions rules (for information about excess contributions see SuperGuide article Excess contributions rules: A quick summary).

No tax on non-concessional contributions

Non-concessional contributions are sourced from your after-tax income or untaxed income, which means the full contribution reaches your superannuation account, and no tax is deducted when the contribution reaches your super fund. No tax is deducted from a non-concessional contribution because you haven’t claimed a tax deduction, or received any other type of tax concession, before making these contributions.

Any earnings that a super fund derives from those contributions are usually taxed at a lower rate than would be the case for earnings outside the super fund, depending on your level of taxable personal income. Super fund earnings are taxed up to 15 per cent compared to marginal tax rates of up to 47 per cent plus 2% Medicare levy (for 2016/2017 year) on individual earnings outside the super environment.

Note: The top marginal tax rate includes a temporary extra tax of 2% for anyone earning $180,000 or more from the 2014/2015 year, taking the top marginal rate to 47% (or 49%, including 2% Medicare levy), until the top marginal tax rate reverts to 45% (plus Medicare levy from 1 July 2017).

Non-concessional contributions cap* for previous years

Income yearCapBring-forward rule
2015/2016 (until 7.30 pm 3 May 2016)$180,000$540,000
2014/2015$180,000$540,000
2013/2014$150,000$450,000
2012/2013$150,000$450,000
2011/2012$150,000$450,000
2010/2011$150,000$450,000
2009/2010$150,000$450,000
2008/2009$150,000$450,000

*If you’re aged 65 or over, you must satisfy a work test to make super contributions. You cannot make voluntary super contributions after turning 75. For more information on the over-75 rule, see SuperGuide article Super contributions beyond the age of 75.

When will the non-concessional contributions cap increase again?

Assuming the proposed new lifetime non-concessional contributions cap of $500,000 becomes law, the $500,000 cap will be indexed in line with increases in the average weekly ordinary times earnings (AWOTE), but in $50,000 increments. What this means is that the cap will not increase annually (unless AWOTE increases by 10% in one year) but will only increase when indexation of the cap totals $50,000 or more.

Background: Previously, when an annual non-concessional contributions cap was in place, the non-concessional contributions cap was regularly indexed in line with increases in the concessional (before-tax) contributions cap. The non-concessional (after-tax) contributions cap was always six times the level of the (indexed) concessional cap. (The concessional cap is indexed in $5,000 increments, which will generally occur every few years. I explain the concessional contributions rules in theSuperGuide article: Super concessional contributions: 2016/2017 survival guide).

History: For the 2013/2014 year and each financial year back to the 2008/2009 year, the annual non-concessional contributions cap was $150,000 (see table at the end of this article). The non-concessional cap increased to $180,000 from the 2014/2015 year, in line with increases in average wages over time. Note that since the non-concessional cap was first introduced in July 2007, the 2014/2015 year was the first time the non-concessional cap had been adjusted (likewise with the concessional contributions cap). Until the 2014/2015 year, the contributions caps had never been adjusted in line with wage increases as promised. Instead the former ALP federal government froze the contributions caps from when they were originally introduced in July 2007, until the end of the 2013/2014 year. The Liberal government has now abolished the annual cap of $180,000 (subject to legislation), and replaced it with a lifetime cap of $500,000

TFN is a must, and count your contributions carefully

TFN alert: Your super fund must have your tax file number (TFN) on record before you can make non-concessional contributions to a super fund. If your fund doesn’t have your TFN, you can’t make after-tax contributions.

Exceeding your contributions cap: If you exceed the non-concessional contributions cap at any time on or after 1 July 2013, you have the opportunity to withdraw your excess contributions from your super fund and earnings on those contributions will count towards your taxable income, plus you will have to pay a small charge for those reflecting the delay in the ATO recouping income tax on that income for that financial year. The alternative is to leave your excess non-concessional super contributions in the super fund, and pay penalty tax of 49% within your super fund on those excess non-concessional contributions. In other words, if you choose to retain your excess contributions in your super account, then the excess non-concessional contributions will be subject to penalty tax of 49% (and 47% from 1 July 2017).

Is super tax-effective for everyone?

If you pay less tax in percentage terms on your wages and salary (and other income) than the 15% earnings tax payable by your super fund on investment earnings, then making non-concessional super contributions may not be a tax-effective option.

The one important exception is if you are eligible to take advantage of the government’s co-contribution scheme. (For the 2016/2017 year, as occurs for the 2015/2016 and 2014/2015 years, the federal government places up to $500 of tax-free super money into your super fund when you make a $1,000 after-tax contribution. For more information, see the SuperGuide article Cashing in on the co-contribution rules (2016/2017 year).

Important: Note that super fund earnings will still be subject to 15% tax, which means anyone paying less than 15% tax on personal income has to decide if making super contributions, such as non-concessional contributions, is a tax-effective strategy.

Income tax background: From the 2012/2013 year onwards, the former ALP federal government introduced tax cuts to offset the increase in the cost of living expected from the imposition of the carbon tax on Australia’s biggest polluting companies. The tax cuts mean a higher tax-free threshold of $18,200, and higher marginal tax rates for incomes above $18,200 and below $80,000. What this means is that for those earning more than $20,542 (for the 2016/2017 year), they will be paying 19% income tax, compared to 15% tax on super fund investment earnings, which means making non-concessional super contributions has become more tax-effective for more Australians.

Can I contribute more than $180,000 during the 2016/2017 year?

Based on the proposed $500,000 lifetime cap, it is possible to contribute more than $180,000 in non-concessional contributions (NCCs), assuming you have not reached your lifetime cap taking into account all of your NCCs since 1 July 2007.

Previous rules: Before 3 May 2016, there was an annual NCC cap of $180,000 and if you’re under the age of 65, you could bring forward up to two years’ worth of non-concessional contributions, which meant you could make up to $540,000 in super contributions in one year, representing your non-concessional (after-tax) cap over a three-year period. Making a non-concessional contribution that is more than the annual non-concessional cap is known as a ‘bring forward’. The maximum bring forward for the 2015/2016 year (up to 3 May 2016) was $540,000. When you contributed more than $180,000 in non-concessional contributions in one year, you automatically triggered the bring-forward rules for the following two years. The ‘bring forward’ rules were not available to Australians aged 65 or over.

Does the lifetime cap apply per couple, or per individual?

The $500,000 lifetime cap for NCCs applies to each person, which means a couple could potentially make up to $1 million in non-concessional contributions for the 2016/2017 year, assuming neither member of the couple has made NCCs since 1 July 2007. For more information about the $500,000 lifetime NCC cap, see SuperGuide article Super stinker update: Immediate cut to non-concessional contributions caps.

So, does that mean that I’m only subject to excess contributions tax if I contribute more than $500,000?

For an individual, any non-concessional contributions over the $500,000 lifetime cap (counting all NCCs since 1 July 2007) could be hit with a penalty tax of 49%, or the alternative is to withdraw the excess contributions. If you choose to keep the excess contributions in your super fund, then the penalty tax of 49% is imposed on the individual rather than the super fund, although you must apply for an amount equal to the tax liability to be withdrawn from your super fund account.

If you have already reached your $500,000 lifetime NCC cap, then making any further NCCs means that you will need to consider the excess contributions rules. For more information on the excess contributions rules see SuperGuide article Excess contributions rules: A quick summary.

For more information about the $500,000 lifetime NCC cap, see SuperGuide article Super stinker update: Immediate cut to non-concessional contributions caps.

Additional 2016/2017 Contributions Guides

Click on the links below to access SuperGuide’s other contributions guides:

Comments

  1. Robert McManamon says:

    Dear Trish

    Re the article “Your guide to non-concesional (after tax) contributions” Jan 14, 2016:

    The section “Non-concessional contributions cap” has an asterisk which leads to the statement:
    “You cannot make super contributions beyond the age of 74”.

    In another article – “Concessional contribution caps:10 facts you should know”, Question 8 says that the age is 75.

    Could you please clarify this one for me?

    Thanks

    Robert

    • Hi Robert
      Thanks for your email. I will include extra commentary on that point in the article.
      Once you reach the age of 75 you cannot make further personal contributions (which means age 74 is the upper age), although contributions can still be deposited before the 28th day after the month you turn 75.
      We have rewritten that asterix to say 75 and then provide link to article explaining the rule: Super contributions beyond the age of 75.
      In essence though, you can only make super contributions before you turn 75, so while you’re 74.
      Regards
      Trish

  2. Trish,

    Have the 2015-2016 contributions caps been announced by the ATO?

    I thought the concessional cap (and by implication the non-concessional cap) were to indexed to CPI?

    Steve

    • Hi Stephen
      Yes, they have been published here.
      They are indexed but are only increased in $5,000 increments (for concessional cap) so may take a few years to increase again. The non-concessional contributions cap is 6 times the general concessional cap.
      I will publish an article on this in our next newsletter.
      Regards
      Trish

  3. I am 64. Last financial year I made a non concessional contribution of $450,000 to my super account.
    Given that the the bring forward threshold has increased for the current financial year, am I able to make any non concessional contributions to my super account this financial year. If the answer is yes, please advise the maximum amount I am able to contribute.
    Thanks
    Mark

    • Hi Mark
      Thanks for your comment.
      Unfortunately, where an individual takes advantage of the bring forward rule, it is the cap that applied when the bring forward is activated that remains applicable. In these circumstances, a further $30,000 cannot be made.
      I am providing general information about the rule, and I suggest you confirm this rule in relation to your personal circumstances with your accountant or the ATO.
      I will be doing an article on this issue in the November 2014 newsletter.
      Regards
      Trish

  4. Non-concessional contributions: I used the bring forward rule and made $450k contributions for the 3 years up to 30 June 2015. Am I able to contribute an additional $30k for the current financial year given the increased threshold?

    • Hi Kathy
      Thanks for your email. Unfortunately, where an individual takes advantage of the bring forward rule, it is the cap that applied when the bring forward is activated that remains applicable. In these circumstances, a further $30,000 cannot be made.
      I am providing general information about the rule, and I suggest you confirm this rule in relation to your personal circumstances with your accountant or the ATO.
      I will be doing an article on this issue in the November 2014 newsletter.
      Regards
      Trish

  5. Kevin Brown says:

    Trish,

    It looks like the 2014/14 non-concessional contributions limit has increased to $180,000 p.a. (see http://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page=3). Therefore I assume the general concessional limit has increased to $30,000 p.a.

    Would you check this out and advise all if this is the case. Good news for those planning a cash out and re-contribution next FY.

    • Hi Kevin
      Thanks for your comment. Yes, the general concessional contributions cap has increased to $30,000. We will have an article about it in our March 2014 newsletter.
      Regards
      Trish

  6. Hi Trish,

    Firstly thanks for a great resource for Superannuation!

    This Q is regarding the new 15% tax on fund earnings above $100k,

    I’m 59 and my wife is 54. Due to the age difference we have loaded my super account so as to bring forward the date for tax free income. Assume many will have done the same.

    This has created very lopsided account balances between us.

    My intention is to, at age 60, withdraw $150k PA which will be used as a non-concessional contribution for my wife. This may be $180k in the 14y onwards.

    My understanding is that I can do this for every year until my wife is 65 – e.g.10 years. Thus a theoretical $1.8m could be transferred over this time frame. I think I maybe able to transfer 3 times the annual limit in the last year – in the year that my wife turns 65. So well in excess of $2m could be transferred over this period.

    Is my understanding about right?

    Many thanks for your time.

  7. Ariane Brose says:

    Hello Trish,

    Thank you so much for your interesting website and for taking the time to answer questions.
    Here is mine: in 2010, we started a SMSF and transfered a business property into it. As I know next to nothing on superfund, I read your articles and other information I could find on the internet.
    On the following website http://www.moneymanagement.com.au/news/smsf-stamp-duty-costs-slashed that has now disappeared, I found the information that the stamp duty costs were abolished on transfer of business property to smsf. I would like to find that information again as my accountant does not believe me when I say it was definitely true at the time. Our solicitor who organised our paper work verified it. But where do I look? Do you know anything about it? When I type “in specie contribution” on your search engine, nothing comes up. Can you help? Thank you!

  8. Janine Lawson says:

    Hi Trish,
    If using a reserve for non-concessional contributions – do these contributions then have to be allocated to a member within 28 days (like the concessional contrbutions do) or can they remain in the reserve indefinitely.
    Thanks for a great website.
    Janine

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