- How does the non-concessional contributions cap work?
- Monitor your Total Superannuation Balance
- When and how does the bring-forward rule apply (for 2018/2019 year)?
- What if I triggered the bring-forward during the 2016/2017 financial year (or during the 2015/2016 year)?
- For more information…
- Next time, consult first and listen to the people Treasurer Morrison
- What information is available on the old lifetime $500,000 cap?
- Were there any exceptions allowed outside the lifetime $500,000 cap?
- What happens if I had made my non-concessional contributions anyway, based on the old rules?
- What did the ATO say about the proposed $500,000 lifetime cap?
- How was the ATO assisting taxpayers making NCCs, and who tried to comply with the new rules?
The annual non-concessional contributions cap is $100,000 for the 2018/2019 year, and $100,000 for the 2017/2018 year. Likewise, the maximum bring-forward cap is $300,000 for the 2018/2019 year, and for the 2017/2018 year.
Continue reading this article to find out more about the non-concessional contributions rules.
Since 1 July 2017, the annual non-concessional (after-tax) contributions cap will always be 4 times the concessional (before-tax) contributions cap. The $100,000 NCC cap will be indexed in $10,000 increments in line with annual $25,000 concessional (before-tax) cap, which will be indexed in $2500 increments. (For information on the $25,000 concessional contributions cap, see SuperGuide article Concessional contributions cap: A quick guide (10 Q&As).)
Super alert! After-tax contributions to defined benefit schemes and constitutionally protected funds are also subject to the $100,00 non-concessional contributions cap.
Note: The additional CGT cap of $1.48 million (for 2018/2019 year) or $1.445 million (for 2017/2018 year) for eligible small business owners remains in place, and is not counted towards the annual non-concessional cap. We believe the capacity to use the CGT cap will be affected by an individual’s Total Superannuation Balance (see next section). If you are considering taking advantage of small business tax concessions, see expert help.
Continue reading to learn more about how the non-concessional contributions rules work, or you can refer to the SuperGuide article Non-concessional contributions: 10 facts about new $100,000 cap.
Background: On 15 September 2016, Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly Dwyer issued a joint media release announcing that the proposed $500,000 lifetime cap on non-concessional contributions (which was to take retrospective effect from 3 May 2016) is now scrapped as a policy and will be replaced with an annual $100,000 cap, taking effect from 1 July 2017. The lower annual NCC cap took effect from 1 July 2017, became law on 29 November 2016 (passed both houses of parliament on 23 November 2016, and received royal assent on 29 November 2016). (You can find out more about the scrapped policy at the end of this article.)
How does the non-concessional contributions cap work?
The annual NCC cap of $100,000 applies to everyone, except anyone who has a Total Superannuation Balance of more than $1.6 million cannot make NCCs.
If you’re under the age of 65, you can also use the bring-forward rule, which allows you to bring forward up to 2 years of NCC caps into one financial year – a maximum bring-forward cap of $300,000 (for the 3-year period), and with more restrictive elements.
Note: A bring forward is not available for those with a Total Superannuation Balance of more than $1.5 million, and a restricted bring forward is available for those with a total superannuation balance of more than $1.4 million. See next section and table below for how these extra restrictions work (or see SuperGuide article Super contributions: Bring-forward rule and your Total Superannuation Balance.
In our view, the government should scrap the $1.6 million ‘Total Superannuation Balance’ threshold for making non-concessional contributions. It is overly complicated. The administration of the total super balance applies to everyone regardless of how much super they have, and we believe the huge costs in administering the rule (and it will hit all fund members) will outweigh the revenue generated by introducing the threshold.
Monitor your Total Superannuation Balance
The annual non-concessional contributions cap is $100,000, and the maximum bring-forward cap is $300,000 (for both the 2017/2018 year, and the 2018/2019 year).
The complicating factor is that a new upper threshold was also introduced since July 2017: individuals with a Total Superannuation Balance of more than $1.6 million are no longer be eligible to make non-concessional contributions. Finito!
If your Total Superannuation Balance is under $1.6 million, then you can make up to $100,000 a year in non-concessional contributions. Further, assuming you are under the age of 65, and your Total Superannuation Balance is less than $1.4 million (explained later in the article), you can even bring forward 3 years’ worth of the annual cap (for what your Total Superannuation Balance entails, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters, and for how your TSB affects your bring-forward cap, see SuperGuide article Super contributions: Bring-forward rule and your Total Superannuation Balance).
Important: It is possible for an Australian under the age of 65 to make up to $300,000 in non-concessional contributions in one financial year (representing the cap for 3 years), subject to having less than $1.4 million in super.
Note: The ‘Total Superannuation Balance’ restriction on non-concessional contributions (NCCs) is that anyone with more than $1.6 million in super cannot make non-concessional contributions, and nor can they make non-concessional contributions that would mean they exceeded the $1.6 million amount in super (although there is slight movement on this rule, which is outlined in the table below).
Warning! Your Total Superannuation Balance determines whether you can make non-concessional contributions, and whether you can take advantage of the bring-forward rules, and also how large your bring-forward cap will be.
If your total superannuation balance is $1.6 million or more, applicable for the 2018/2019 year (or for the 2017/2018 year), you cannot make non-concessional contributions (NCCs) for the 2018/2019 year (or for the 2017/2018 year), and in turn, you cannot take advantage of the bring-forward rule.
Your TSB also affects your retirement plans in the following way:
- TSB is less than $1.4 million: If your total superannuation balance (TSB) is less than $1.4 million on 30 June 2017 (for 2017/2018 year) or on 30 June 2018 (for 2018/2019 year), then you can make non-concessional contributions (NCCs), and you can take advantage of the maximum bring-forward cap of $300,000, and your bring-forward period is 3 years.
- TSB is $1.4 million or more but less than $1.5 million: If your TSB is $1.4 million or more, but less than $1.5 million on 30 June 2017 (for 2017/2018 year) or on 30 June 2018 (for 2018/2019 year), then your maximum bring-forward cap is $200,000 and your bring-forward period is 2 years.
- TSB is $1.5 million or more but less than $1.6 million: You can only take advantage of the annual NCC of $100,000. You have no bring-forward cap.
For more information on the Total Superannuation Balance concept and how it affects the bring-forward rule, see SuperGuide article Super contributions: Bring-forward rule and your Total Superannuation Balance.
When and how does the bring-forward rule apply (for 2018/2019 year)?
|Total superannuation balance on 30 June 2018||Non-concessional contributions cap for the first year||Bring-forward period|
|Less than $1.4 million||$300,000||3 years|
|$1.4 million to less than $1.5 million||$200,000||2 years|
|$1.5 million to less than $1.6 million||$100,000||No bring-forward period, general NCC cap applies|
|$1.6 million or more||Nil||n/a|
Source: Adapted from Explanatory Memorandum accompanying the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.
What if I triggered the bring-forward during the 2016/2017 financial year (or during the 2015/2016 year)?
Transitional arrangements apply for Australians who are in the middle of a bring-forward arrangement, that is, the bring-forward rule was activated in the 2015/2016 or 2016/2017 years (for information on how this special rule works, the bring-forward rules currently work, see SuperGuide articles Understanding the transitional bring-forward rule (for 2018/2019 and 2017/2018 years) and Bring-forward rule: A definitive super guide).
Note: Since July 2017, such an individual is also subject to the Total Superannuation Balance threshold: if his or her Total Superannuation Balance exceeds the $1.6 million threshold for the 2017/2018 year, or for the 2018/2019 year, his or her bring forward cap drops to nil.
For more information…
For information on how the current non-concessional contributions rules operate, and the bring-forward rules operate, see the following SuperGuide articles:
- Your 2018/2019 guide to non-concessional (after-tax) contributions
- Bring-forward rule: A definitive super guide
- Non-concessional contributions: 10 facts about new $100,000 cap
- Super contributions: Bring-forward rule and your Total Superannuation Balance
- Understanding the transitional bring-forward rule (for 2018/2019 and 2017/2018 years)
For background information on how the new non-concessional contributions cap came about, continue reading this article.
Next time, consult first and listen to the people Treasurer Morrison
On 3 May 2016, as part of the 2016 Federal Budget, federal treasurer Scott Morrison mucked up the retirement plans of countless Australians when he announced an immediate cut to the non-concessional (after-tax) contributions cap, taking effect from 7.30pm on 3 May 2016 (subject to legislation).
Effective from 7.30pm on 3 May 2016, the Coalition government planned to introduce a $500,000 lifetime non-concessional contributions cap (subject to legislation), and this lifetime cap would take into account all non-concessional contributions made on or after 1 July 2007 (that is, 10 years ago). The lifetime $500,000 cap was to be indexed annually in line with average weekly ordinary time earnings, in $50,000 increments.
On 15 September 2016, the federal government announced that the proposed $500,000 lifetime cap on non-concessional contributions was now scrapped, and would be replaced with an annual $100,000 non-concessional cap (now law). The start date for the annual non-concessional cap is 1 July 2017, which means the $180,000 annual non-concessional cap remains in place until 30 June 2017, and the bring-forward rule allowing up to $540,000 in non-concessional contributions, also remains in place until 30 June 2017.
Although the new proposed cap has implementation and administrative issues and is far too restrictive, the new version of the non-concessional contributions cap has redressed the retrospective issues. As I have stated before on this website, the lifetime cap was too low, and too inflexible.
I also commented that without doubt it should not be retrospective, and the parliament should consider scrapping it. Until 15 September 2016, we were already 4 months into a superannuation policy that had no legislative basis (and minimal additional information since the 2016 Federal Budget was announced in May). The retrospective $500,000 lifetime cap had already affected the super plans of Australians for previous financial years, in particular the 2015/2016 year, and also the current 2016/2017 financial year.
I also stated in August 2016: “Let’s see what time, consultation and political pressure does to a bad superannuation policy, and to the career of an ambitious politician who has again failed to properly consult with his party, the parliament, the super industry and his employer — the Australian public”.
Treasurer Scott Morrison (when he was Minister for Social Services) is also responsible for the January 2017 changes to the Age Pension assets test that have detrimentally affected more than 300,000 Australian retirees (for information on this Age Pension change, that was also introduced without consultation with the Australian public, see SuperGuide articles Age Pension: 300,000 Australians lost entitlements on 1 January 2017 and Retirementgate: Government’s Age Pension debacle hits middle Australia).
What information is available on the old lifetime $500,000 cap?
The planned introduction of a $500,000 lifetime cap (now scrapped) was a shock change to the non-concessional caps, and would have been financially disruptive to many Australians who may have been in the process of planning significant non-concessional contributions under the old rules. This $500,000 lifetime cap was particularly shocking considering that under the rules that were in place until 3 May 2016 (and now continue to apply for the 2015/2016 and 2016/2017 years), an individual under the age of 65 could make up to $540,000 in non-concessional contributions over a 3-year period.
Be clear: The lifetime concessional cap of $500,000 was to replace the existing annual cap, which had allowed an individual to contribute up to $180,000 a year in non-concessional contributions (or if under the age of 65, up to $540,000 over three years).
On 12 May 2016, the ATO published further information on this measure, which we have included later in this article. On 24 May 2016, the ATO also announced a special service for accountants and advisers who need urgent information on the amount of non-concessional contributions made by their clients (we explain this service at the end of this article, and the fine-tuning of this service, which was announced on 15 August 2016). The special ATO service is now redundant considering the government has reverted to an annual non-concessional cap, and an upper limit based on the size of a person’s super balance.
Were there any exceptions allowed outside the lifetime $500,000 cap?
True to Treasurer Morrison’s recent form, following his May 2016 announcement of this ill-considered NCC policy, he was causing further confusion by suggesting (but not being specific) there may be ‘life event’ exceptions to the $500,000 lifetime cap. Exceptions may have included the event of divorce or inheritance, or if a contractual commitment was in place before the announcement (for example, SMSF property purchase). Apparently he was doing extensive consultation with his fellow MPs about these life events: perhaps this consultation should have taken place before he announced this questionable policy to the world.
Small business CGT contributions cap still applied: In the superannuation Q&A fact sheet accompanying the 2016 Federal Budget papers, the government made it clear that the small business capital gains tax (CGT) exemption continues to apply, in addition to the $500,000 lifetime cap. Quoting from the fact sheet:
Eligible small business owners can make superannuation contributions that do not count towards their non-concessional contributions cap where the contribution is the proceeds from the disposal of a CGT asset that is exempt from CGT under the 15-year exemption or the retirement exemption:
- The 15-year exemption – which currently allows the maximum contribution of $1.395 million [for 2015/2016 year, and $1.415 million for 2016/2017 year] where it is an active asset that has been owned continuously for 15 year[s] and the owner is over 55 years of age; and
- The retirement exemption – which allows lifetime maximum contributions of $500,000
These two exemptions cannot currently exceed the cumulative total of $1.395 million [for 2015/2016 year, and $1.415 million for 2016/2017 year].
What happens if I had made my non-concessional contributions anyway, based on the old rules?
I cannot answer this question specifically, but apparently some Australians were taking a punt and continuing on as business as usual, either because they believe the ALP combined with independent parliamentarians would veto the proposed lifetime cap, or because they believed the final legislation would be fairer, or because the possible penalties were worth the risk.
According to the ATO (before legislation was drafted and with no legislative authority), if an individual made non-concessional contributions after commencement of the legislation (which was never drafted) and that caused them to exceed their cap, the ATO would notify them to withdraw the excess from their super account. If they don’t withdraw the amounts, the excess contributions would then be subject to the current excess contributions rules (for information on those rules see SuperGuide article Excess contributions rules: A quick summary). Thankfully, Australian taxpayers will no longer have to face this dilemma since the government has scrapped the $500,000 lifetime cap.
Note: The ATO information set out in the next section does not state that an individual would have been penalised for making the super contribution, but that he or she would have been penalised if the contribution was not withdrawn after the individual received a notice from the ATO to withdraw the amount. Without legislation, it was very unclear and very unfair for retirement planning to be a punt, and the federal government and the ATO needed to provide more detailed information on this measure. Again, thankfully, the retrospective $500,000 lifetime NCC has now been scrapped.
What did the ATO say about the proposed $500,000 lifetime cap?
On 12 May 2016, the Australian Tax Office published some information on this now scrapped policy (which has since been integrated into another ATO website page): for completeness, we have reproduced the original text in full below.
Introduce a lifetime cap on non-concessional superannuation contributions
On 9 May 2016 the Australian Government assumed a caretaker role. The continuation of this measure will be a matter for the incoming government to decide.
In the 2016-17 Budget it was announced that from 7.30pm (AEST) on 3 May 2016 there will be a lifetime cap of $500,000 on non-concessional superannuation contributions.
The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.
The lifetime cap will be indexed to the Average Weekly Ordinary Time Earnings (AWOTE), increasing in $50,000 increments.
If an individual has exceeded the cap prior to commencement, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system.
If an individual makes contributions after commencement that causes them to exceed their cap they will be notified by the ATO to withdraw the excess from their superannuation account.
Individuals who choose not to withdraw the excess amount will be subject to the current penalty arrangements.
Non-concessional contributions made into defined benefit accounts will be included in an individual’s lifetime non-concessional cap.
Legislation and supporting material
- Legislation is currently being developed for this measure.
How was the ATO assisting taxpayers making NCCs, and who tried to comply with the new rules?
The ATO had not yet introduced measures to help individual taxpayers with queries about non-concessional contributions made since 1 July 2007. The ATO had however introduced mechanisms to assist taxpayers who use an accountant or financial adviser.
On 24 May 2016, the ATO published information inviting accountants and advisers to contact the ATO if they needed urgent information about a client’s non-concessional contributions for the 2015/2016 year. The ATO stated “We aim to simplify the calculation process before 1 July 2016. To help us provide information within a few business days to those with a critical need we ask that you prioritise your clients’ requests. We ask that you lodge requests for more than ten clients via the Tax Agent Portal using portal mail – select topic ‘Superannuation’ and ‘other’.”
The ATO manually calculated a person’s non-concessional contributions made since 1 July 2007, assuming that the person had met their lodgement obligations from 1 July 2007 through to 30 June 2015.
On 15 August 2016, the ATO announced that from late August 2016, the Tax Agent Portal will have a new portal mail topic called ‘NCC balance’. The ATO reports that tax agents can use this mail topic to request reported non-concessional contributions for clients. According to the ATO, tax agents will be able to “request balances for a specific list of clients or for all clients. The new mail topic makes requesting and processing balances easier and quicker”.
This ATO service will no longer be needed, although we do need the ATO’s assistance to track Total Superannuation Balances under the new NCC rules announced on 15 September 2016, and which became law on 29 November 2016, and which took effect from 1 July 2017.