Note: In the May 2016 Federal Budget, Treasurer Scott Morrison announced the end of the over-50s concessional (before-tax) contributions cap, which took effect from 1 July 2017. Instead, the federal government introduced a catch-up opportunity for Australians with less than $500,000 in super. Continue reading for more information on the catch-up provisions, but be warned, the government has made it a very complicated opportunity.
I have received plenty of emails from SuperGuide readers asking for clarification about the catch-up concessional contributions rule that start from 1 July 2018, but take full effect from 1 July 2019.
Tip: For a quick summary of the catch-up rules, see SuperGuide article Concessional contributions: Catch-up rules now apply (10 Q&As).
What is the catch-up concessional contributions rule?
As part of the Government’s 2016 Federal Budget, the government announced that, from 1 July 2017, Australians aged 50 or over would no longer have a higher concessional contributions cap.
The politicians of course were not as blunt as the statement above. The government’s announcement did not expressly state the government was killing off the over-50s concessional (before-tax) contributions cap: instead the government announced that from 1 July 2017, there would be a single concessional contributions cap for all ages, and the cap would be cut to $25,000.
Further, from 1 July 2018, if your Total Superannuation Balance (includes all balances, if you have more than one super account) is less than $500,000 at the end of a financial year, then you will have the opportunity to utilise the unused portions of your concessional caps from previous years (up to 5 years’ worth) in the following financial year, or future years.
The unused cap amounts can start to be carried forward from 1 July 2018, that is, from the start of the 2018/2019 financial year, which means the 2019/2020 year is the first financial year that individuals can take advantage of unused cap amounts from previous financial years.
What do the proposed changes mean for your current concessional contributions plans?
For the 2017/2018 year, the annual $25,000 concessional contributions cap applies to all ages, and there is no opportunity to play catch-up if you don’t use all of your concessional cap.
The $25,000 cap will be indexed in $2,500 increments in line with increases in Average Weekly Ordinary Times Earnings (AWOTE), which means the cap is indexed only when “indexation results in the threshold equalling or exceeding a multiple of $2,500”.
For the 2018/2019 year, the annual concessional cap remains at $25,000, and you are still unable to make catch-up contributions. The big change however is that any unused portion of your concessional cap for the 2018/2019 year will start accruing to be potentially used in future financial years.
Note: Concessional contributions include your employer’s compulsory Superannuation Guarantee contributions.
From 1 July 2019, you will be able to make catch-up concessional contributions, if eligible.
If your superannuation account balance (or combined balances if more than one super account) is less than $500,000 at the end of a financial year, then you will have the opportunity to utilise unused portions of the concessional contributions cap amount from previous years (up to 5 years’ worth) in the next financial year, or future financial years. Unused cap amount can be carried forward from 1 July 2018, that is, from the start of the 2018/2019 financial year. For more information, see SuperGuide article Super opportunity: Catch-up concessional contributions from July 2018.
The former ALP government tried to introduce this $500,000 super account threshold but gave up because of the complexity and administrative hassle. If anyone in the decision-making process is listening, our advice is to keep it simple! Get rid of the $500,000 account balance threshold and make it a simple and straightforward catch-up option for everyone.
Warning: From my reading, it does NOT seem that the $500,000 TSB threshold is to be indexed over time, which, if correct, is outrageous. I don’t think anyone will be prepared for the administrative nightmare that will be created by the complicated rules associated with this new measure.
Our companion SuperGuide article, Concessional contributions: Catch-up rules now apply (10 Q&As) answers the important questions relating to the new rules.
“One of the more ridiculous implementation stuff-ups”
In the 30 years that I have been working in, and writing, about super and retirement planning, this is one of the more ridiculous implementation stuff-ups. In most cases, super funds do not have the information available to super fund members about the most recent financial year until 2 to 3 months after the end of the financial year, and this is particularly so for specific account balances.
If you want to make super contributions in the early months of a financial year, when you do not have access to financial year-end information about your account balance, then you either take a punt and contribute anyway, or delay your contribution plans until you have all of the information.
The implementation stage of the catch-up concessional contributions provisions is when the super industry and super fund members will discover that the $500,000 TSB threshold has been devised by Treasury advisers and politicians, with apparently very little connection to the real world. Based on the available information provided by the government, I suggest that the creators of this policy have very little practical knowledge of how super funds operate, and how Australians make decisions on when and how much to contribute to a super fund.
I do wonder if the $500,000 TSB threshold will last, due to the administrative nightmare that it will create for super fund members, super funds and the ATO. In my opinion, the catch-up concessional contributions provisions should be available for all Australians, not just for those with a TSB of less than $500,000 (in accumulated super and pension accounts).
And then there is your responsibility to track your unused concessional cap amounts…
For more information…
For more information on the catch-up concessional contributions rules, and concessional contributions generally, see the following SuperGuide articles:
- Super opportunity: Catch-up concessional contributions from July 2018
- Concessional contributions: Catch-up rules now apply (10 Q&As)
- Super concessional (before-tax) contributions: 2018/2019 survival guide
- Cut to concessional contributions caps: the back story
- Super opportunity: Catch-up concessional contributions from July 2018
- Salary sacrifice and super: A guide for employees and employers
- Employees can now make tax-deductible super contributions (since July 2017)
- Concessional contributions cap: A quick guide (10 Q&As)
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