Non-concessional contributions: 10 facts about new $100,000 cap

The annual $100,000 non-concessional (after-tax) contributions cap became law on 29 November 2016, and took effect from 1 July 2017 (from the start of the 2017/2018 year).

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 was now scrapped as a policy and would be replaced with an annual $100,000 after-tax contributions cap, taking effect from 1 July 2017 (for more background on the new policy and what the federal government originally had planned see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap).

I receive a lot of questions from readers seeking information about how the non-concessional (after-tax) rules work; in particular, how the new $100,000 non-concessional contributions (NCC) cap applies, including the extra condition regarding the Total Superannuation Balance threshold that individuals now need to satisfy. The cut in the annual NCC cap since 1 July 2017 has also flowed on to how the bring-forward rules operate.

The 10 facts about the new NCC rules listed below relate to the 2017/2018 financial year. For more detailed information on the new non-concessional cap since July 2017, see SuperGuide articles New $100,000 cap: Cut to non-concessional contributions cap and Your 2017/2018 guide to non-concessional (after-tax) contributions.

1. What is a non-concessional (after-tax) contribution?

According to the explanatory memorandum (Chapter 5) accompanying the legislation enacting the new annual non-concessional contributions (NCC) cap, NCCs are “generally, contributions made from an individual’s after-tax income (that is, from income that has been taxed at their marginal rate) and are therefore not included in the assessable income of the superannuation fund. Individuals may choose to make non-concessional contributions to their superannuation because future earnings on these contributions within the superannuation system will be taxed at the concessional rate of 15 per cent.

“In contrast, concessional contributions are made from pre-tax income, and generally included in the assessable income of the superannuation fund and taxed at the concessional rate of 15 per cent.” (For information about the new concessional (before-tax) contributions cap, see SuperGuide article Concessional contributions caps slashed since July 2017.)

For more information on the types of super contributions that are treated as non-concessional contributions, see SuperGuide article Your 2017/2018 guide to non-concessional (after-tax) contributions.

Super alert! A spouse cannot make super contributions on behalf of his or her spouse, if the spouse receiving the super contributions has a Total Superannuation Balance of $1.6 million or more at the end of the previous financial year. For the 2017/2018 financial year, TSB is measured as at 30 June 2017. The receiving spouse will also not be eligible for the spouse contributions, if the receiving spouse has exceeded their non-concessional (after-tax) contributions cap. For more information about your TSB, or your spouse’s TSB, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters). For more information about the spouse contributions tax offset, see SuperGuide article Boost your spouse’s retirement kitty: 10 things you need to know.

2. What is the non-concessional (after-tax) contributions cap for the 2017/2018 year?

Since 1 July 2017, the annual non-concessional contributions (NCC) cap is $100,000 and the maximum bring-forward cap is $300,000.

The lower $100,000 NCC cap will be indexed over time. From 1 July 2017, the annual non-concessional (after-tax) contributions cap will always be 4 times the concessional (before-tax) contributions cap. The new $100,000 cap will be indexed in $10,000 increments, in line with the periodic indexation of the $25,000 concessional cap (which will be indexed in $2,500 increments, for information on the $25,000 concessional cap applicable from July 2017, see SuperGuide article Concessional contributions caps slashed since July 2017) .

If you’re under the age of 65, you can bring forward two years’ worth of the annual non-concessional contributions cap. Once you contribute more than $100,000 in the 2017/2018 financial year, you automatically trigger the bring-forward rule for the following two years.

The bring-forward rule means that it is possible to make up to $300,000 (for the 2017/2018 year) in non-concessional contributions in a single financial year, or, say, for example, $200,000 in the first year and the balance of $100,000 over the following two years, or any financial combination that adds up to $300,000 over the 3-year period. For more information on the bring-forward rules, see SuperGuide article Bring-forward rule: A definitive super guide.

Note: If you triggered a bring-forward during the 2015/2016 year, or 2016/2017 year, which crosses over into the 2017/2018 year, then be mindful of the transitional rules in place (for information about the transitional rules see Fact 7 below).

3. Total Superannuation Balance is the new upper threshold

Note that since 1 July 2017, the NCC rules also include a ‘Total Superannuation Balance’ limit. Individuals with a Total Superannuation Balance equal to, or more than, $1.6 million, will not be able to make NCCs. Further, you can only use the maximum bring forward of $300,000 if you have a Total Superannuation Balance of less than $1.4 million (see Fact 4 below and SuperGuide articles Super contributions: Bring-forward rule and your Total Superannuation Balance and Total Superannuation Balance: 7 reasons why your TSB matters).

4. If you have more than $1.4 million in super, you have fewer opportunities to make NCCs

Since 1 July 2017, if you have a Total Superannuation Balance of less than $1.4 million, you can make annual NCCs of up to $100,000 a year, and you can use a maximum bring forward of $300,000 over a 3-year period.

If your Total Superannuation Balance (TSB) is equal to, or more than $1.4 million, but less than $1.5 million, then you can only bring forward up to 1 year of NCCs, over a 2-year period. If your TSB is equal to, or more than $1.5 million but less than $1.6 million, then you cannot use the bring-forward rules, but you can take advantage of the $100,000 annual NCC cap.

If your TSB is $1.6 million or more, then you cannot make any NCCs, and obviously you then cannot take advantage of the bring-forward rules. See table below.

When and how does the bring-forward rule apply (from 2017/2018 year)?

Source: Adapted from Explanatory Memorandum accompanying the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 .

5. Defined benefit schemes and constitutionally protected funds are subject to new NCC cap

Since 1 July 2017, non-concessional contributions to defined benefit schemes and constitutionally protected funds are also subject to the lower NCC cap.

6. Small business CGT cap is in addition to NCC cap

According to earlier explanatory materials, the additional CGT cap for eligible small business owners remains in place before and after July 2017. The CGT cap is $1.455 million for the 2017/2018 year.

Warning: Although the small business CGT cap is not subject to the annual NCC cap, we believe it will have an impact on an individual’s Total Superannuation Balance threshold, once that contribution is made. If you are considering taking advantage of the small business CGT cap, seek expert advice and verify your circumstances with the ATO.

7. Expect a transitional NCC cap if triggered the bring-forward rule during the 2016/2017 year or 2015/2016 year

Transitional arrangements apply for Australians who activated the bring-forward rule during the 2015/2016 or 2016/2017 years, and didn’t fully utilise the bring-forward cap in those financial years. On 1 July 2017, the remaining bring-forward amount was reassessed to reflect the new annual NCC cap. For information on how the bring-forward rules work, see SuperGuide article Bring-forward rule: A definitive super guide. For more information on the transitional bring-forward rules, see SuperGuide article Understanding the transitional bring-forward rule (for 2017/2018 and 2018/2019 years).

Important: Since 1 July 2017, an individual is also subject to the Total Superannuation Balance threshold, If an individual’s Total Superannuation Balance exceeds the $1.6 million threshold for the 2017/2018 year, his or her bring forward cap drops to nil, even if he or she would have been eligible for a transitional bring-forward cap (apart from the existence of the $1.6 million-plus Total Superannuation Balance). See Fact 8 below.

8. Your ‘Total Superannuation Balance’ is important when considering NCCs

Since 1 July 2017, anyone with a Total Superannuation Balance equal to, or more than, $1.6 million will not be able to make non-concessional contributions. Further they cannot make non-concessional contributions that would mean they exceed the $1.6 million amount in super (except where they follow specific rules – see Fact 4 above). For more information, see SuperGuide article Super contributions: Bring-forward rule and your Total Superannuation Balance.

Note: The $1.6 million Total Superannuation Balance threshold for making non-concessional contributions is based on an individual’s balance as at 30 June of the previous financial year. For more information, see SuperGuide articles Total Superannuation Balance: 7 reasons why your TSB matters and Your 2017/2018 guide to non-concessional (after-tax) contributions.

9. No more co-contributions if you exceed your NCC cap, or have more than $1.6 million in super

Since 1 July 2017, an individual is eligible for government co-contributions if his or her non-concessional contributions exceed his or her annual non-concessional cap. An individual is also eligible for the government co-contribution if, at 30 June of the previous financial year, his or her total superannuation balance equals or exceeds the general transfer balance cap amount (that is, equals or exceeds $1.6 million)(for more information on the current co-contribution rules, see SuperGuide article Cashing in on the co-contribution rules (2017/2018 year)).

For more information about your Total Superannuation Balance, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters.

10. Your total superannuation balance can include up to 3 different components

According to the explanatory memorandum accompanying the new legislation, an individual’s total superannuation balance at a particular time includes the following three items:

• The value of all superannuation interests in accumulation phase (that is, all super interests not in pension phase)
• The balance of a person’s transfer balance account (generally commencement value of a superannuation pension), adjusted to reflect the current value of account-based pension interests in retirement phase (pension phase)
• ‘In transit’ rolled over superannuation benefits (that are not yet reflected in the balances mentioned in the previous two bullets).

The sum of these amounts is then reduced by the sum of any structured settlement contributions (if applicable), which relate to compensation payments resulting from serious injury and income loss that are rolled over into super.

For more information on how your total superannuation balance is calculated, and the new NCC rules, see the following SuperGuide articles:

• Total Superannuation Balance: 7 reasons why your TSB matters
• Your 2017/2018 guide to non-concessional (after-tax) contributions
• Bring-forward rule: A definitive super guide
• Super contributions: Bring-forward rule and your Total Superannuation Balance
• New $100,000 cap: Cut to non-concessional contributions cap
• Understanding the transitional bring-forward rule (for 2017/2018 and 2018/2019 years)