- What are the proposed changes to the over-50s concessional cap?
- What do the proposed changes mean for my current concessional contributions plans?
- What does the proposed removal of the over-50s concessional cap mean for my future contributions plans?
- When will the proposed changes to the concessional caps become law?
SUPER ALERT! In the May 2016 Federal Budget, Treasurer Scott Morrison announced the end of the over-50s concessional (before-tax) contributions cap, taking effect from 1 July 2017. For the 2016/2017 year, the over-50s cap continues to apply. Continue reading for more information on the over-50s concessional cap.
I have received plenty of emails from SuperGuide readers asking for clarification about the over-50s concessional cap, including who is eligible, and how long the over-50s cap will apply for.
This article, and our companion SuperGuide feature, Super contributions: Over-50s concessional caps (10 Q&As), will hopefully answer most of your questions.
What are the proposed changes to the over-50s concessional cap?
In early May 2016, the Government released its 2016 Federal Budget. As part of the Government’s 2016 Federal Budget, the government announced that, from 1 July 2017, Australians aged 50 or over will 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.
The current concessional caps, applicable for the 2016/2017 year, are $35,000 (for over-50s) and $30,000 (for under-50s). Information on how these aged-based concessional caps operate is set out in the following section of this article.
What do the proposed changes mean for my current concessional contributions plans?
For the 2016/2017 year (1 July 2016 to 30 June 2017), a general concessional contributions cap of $30,000 applies to those under a certain age, and the concessional contributions cap for older Australians of $35,000 also continues to apply. More specifically:
- If you are 49 years or older on 30 June 2016, then you are subject to the $35,000 concessional contributions cap for older Australians.
- If you are 48 years or younger on 30 June 2016, then you are subject to the $30,000 general concessional contributions cap.
Note: Concessional contributions include your employer’s compulsory Superannuation Guarantee contributions.
Our companion SuperGuide article, Super contributions: Over-50s concessional caps (10 Q&As) answers the most popular questions asked by SuperGuide readers about current concessional contributions plans.
What does the proposed removal of the over-50s concessional cap mean for my future contributions plans?
From 1 July 2017 (subject to legislation), the concessional contributions cap will drop to $25,000 for all Australians, regardless of age. 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”.
From 1 July 2018 (subject to legislation), 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, my 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.
When will the proposed changes to the concessional caps become law?
The federal government released an exposure draft explaining the proposed changes to the concessional contributions caps on 27 September 2016, and asked for submissions until 10 October 2016.
The rules need to be in place before July 2017, since that is when the rules are supposed to take effect, although the government has not yet introduced legislation into Parliament. Treasurer Scott Morrison has indicated that he hopes these proposed changes will become law by December 2016.
All SuperGuide newsletter subscribers will be notified, via the monthly SuperGuide newsletter email when the changes to the concessional caps become law. If you are not yet a subscriber, you can subscribe to our free monthly newsletter by clicking on the button on the right-hand side of this page.
If you have questions about the current over-50s concessional cap, check out this article’s companion feature Super contributions: Over-50s concessional caps (10 Q&As). If you have questions about the proposed $25,000 concessional cap taking effect from 1 July 2017, see SuperGuide article Concessional contributions caps slashed since July 2017