Note: This article explains the rules applicable to non-concessional contributions for the 2017/2018 year, and explains the rules applicable for the 2016/2017 year. You can also find information about the lower non-concessional cap, effective from 1 July 2017, in SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap .
Taking effect from 1 July 2017, the annual non-concessional contributions cap is $100,000, and the 3-year bring-forward cap is $300,000. For the 2016/2017 year, the annual after-tax contributions cap is $180,000, and the 3-year bring-forward cap is $540,000. Continue reading this article to find out more.
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 (planned to take effect from 3 May 2016) is now scrapped as a policy (for information on this scrapped $500,000 lifetime cap, see the end of the article).
Instead, the government has replaced the lifetime cap with an annual $100,000 cap (becoming law in November 2016), taking effect from 1 July 2017. Note that if you have a total superannuation balance equal to, or more than $1.6 million, you will not be able to make non-concessional contributions on or after 1 July 2017.
The annual $100,000 NCC cap will be indexed in $10,000 increments, in line with the indexation of the concessional (before-tax) contributions cap, which is then indexed in line with increases in the average weekly ordinary times earnings (AWOTE). The indexation of the $100,000 cap is based on 4 times the indexed increase in the $25,000 concessional (before-tax) cap. The concessional contributions cap will be indexed in $2,500 increments, which we anticipate means that the $100,000 after-tax will be indexed in $10,000 increments (4 x the concessional cap increment). 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 $25,000 concessional cap totals $2,500 or more.
Important: If you trigger the bring-forward rules during the 2015/2016 or the 2016/2017 years, and you don’t fully utilise your bring-forward cap before 1 July 2017, then your bring-forward cap will be subject to transitional rules. For an explanation of the bring-forward rules, see later in the article. For more information about the transitional rules, see SuperGuide articles Bring-forward rule: 10 super facts you should know and New $100,000 cap: Cut to non-concessional contributions cap.
Warning! From 1 July 2017, if your total superannuation balance exceeds $1.6 million as at 30 June 2017, then you cannot make non-concessional contributions. Further, you can only take full advantage of the bring-forward rules if your total superannuation balance (TSB) is less than $1.4 million as at 30 June 2017, and partial advantage of the bring-forward rules if your TSB is more than $1.4 million but less than $1.5 million. For more information about the importance of your TSB and how it interacts with the non-concessional contributions rules, see section and table later in this article, and SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap.
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 (for more information, see SuperGuide article Super for beginners, part 14: Save tax – Supply TFN to your super fund).
What are non-concessional (after-tax) contributions?
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 an annual limit on the amount of non-concessional (after-tax) contributions that you can make.
Non-concessional contributions are sourced from your after-tax income or non-taxed 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 generally taxed at a lower rate than would be the case for earnings on investments or savings 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 45 per cent plus 2% Medicare levy (for 2017/2018 year) on individual earnings outside the super environment. If you pay less than 15% tax in the dollar on your personal income, then super may not be a tax-effective investment.
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 until the end of the 2016/2017 year, which took the top marginal rate to 47% (or 49%, including 2% Medicare levy). The top marginal tax rate now reverts to 45% plus Medicare levy from 1 July 2017. (For more information on this extra income tax, see SuperGuide article Temporary Budget Repair Levy: More income tax for high-income earners until June 2017.)
What are the non-concessional (after-tax) contributions caps?
Non-concessional, or after-tax, superannuation contributions are subject to a contributions cap, which sets an annual limit on the amount of non-concessional (after-tax) contributions that you can make.
For the 2017/2018 year: The Coalition government has introduced an annual non-concessional contributions cap of $100,000 from 1 July 2017.
For the 2016/2017 year: The non-concessional contributions cap applicable from 1 July 2016 until 30 June 2017, is $180,000. The annual NCC cap of $180,000 also applied for the 2015/2016 and 2014/2015 financial years. (See table below for non-concessional contributions limits for the past 10 years).
Important: If you are under the age of 65, you can contribute up to $300,000 in non-concessional contributions for the 2017/2018 year (for the 2016/2017 year, the limit is $540,000, and was also applicable for the 2015/2016 and 2014/2015 years), representing your annual cap over a 3-year period. The opportunity to take advantage of the non-concessional cap for future years, in the current financial year, is known as the bring-forward rule (see later in this article for an explanation of the bring-forward rule, or see our SuperGuide article Bring-forward rule: 10 super facts you should know).
Warning! From 1 July 2017, if your total superannuation balance exceeds $1.6 million as at 30 June 2017, then you cannot make non-concessional contributions. See section and table later in this article, and SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap
Non-concessional contributions cap for 2017/2018 year, for 2016/2017 year and previous years
|Income year||Cap||Bring-forward cap*|
*If you’re aged 65 or over, you must satisfy a work test to make super contributions (see SuperGuide article Over-65s work test: How does it operate again?). 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.
**From 1 July 2017 onwards, if your total superannuation balance is equal to, or more than, $1.6 million, you cannot make non-concessional contributions on or after 1 July 2017.
Can I contribute more than $100,000 in NCCs during the 2017/2018 year?
The non-concessional contributions (NCC) cap for the 2017/2018 year is $100,000 (and for the 2026/2017 year it is $180,000). If you’re under the age of 65 however, you can bring forward up to two years’ worth of non-concessional contributions, which means you can make up to $300,000 in super contributions in one year for the 2017/2018 year (and up to $540,000 in one year for the 2016/2018 year), representing your non-concessional (after-tax) cap over a three-year period, assuming of course that you have not triggered the bring-forward rules in the previous 3 years.
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 2017/2018 year is $300,000 (and for the 2016/2017 year is $540,000). For the 2017/2018 year, when you contribute more than $100,000 in non-concessional contributions in one year, and you are under the age of 65, you automatically trigger the bring-forward rules for the following two years. The ‘bring forward’ rules are not available to Australians aged 65 or over.
What cap applies for the 2017/2018 year if I triggered the bring-forward rules during the 2016/2017 or 2015/2016 years?
If you trigger a bring forward during the 2015/2016 year, or the 2016/2017 year, and you don’t fully utilise the bring-forward by 30 June 2017, then you need to be aware of the transitional rules applicable from July 2017.
Transitional arrangements will 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 more detailed information on how the bring-forward rules, see SuperGuide article Bring-forward rule: 10 super facts you should know).
Quoting from the explanatory memorandum (Chapter 5), “Where an individual triggered their bring forward period in the 2015-16 financial year, their non-concessional contributions caps for the first (2015-16) and second (2016-17) years are set by the rules that applied to those financial years. However, the cap for the third year (2017-18) will be set by transitional rules put in place by [Schedule 3 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016]”.
On 1 July 2017, the remaining bring-forward amount will be reassessed to reflect the new annual NCC cap.
What this means is that an individual can trigger the bring-forward rule during the 2016/2017 year (assuming under the age of 65) and make up to $540,000 in NCC for the 2016/2017 year, and comply with the NCC rules. If the individual does not fully utilise the $540,000 cap during the 2016/2017 year, then the maximum bring-forward cap will fall to reflect the drop in the annual NCC cap from July 2017.
Further, from July 2017, the individual also will be subject to the total superannuation balance threshold, and if his total superannuation balance exceeds the $1.6 million threshold for the 2017/2018 year, his bring forward cap drops to nil (see section and table later in the article for more information about the total superannuation balance restriction).
Example 1: Margaret makes a $200,000 NCC during 2016/2017 year: If Margaret made a NCC of $200,000 during the 2016/2017 year, she triggers the bring-forward rule. Due to the drop in the annual NCC cap from July 2017, her maximum bring-forward capacity for the remaining 2 years of the bring-forward period is $180,000 (that is $180,000 + $100,000 + $100,000 less $200,000). If Margaret had triggered the bring-forward rule during the 2015/2016 financial year with a $200,000 NCC, and then made a $120,000 NCC during the 2016/2017 year, her maximum bring-forward cap for the 2017/2018 year would be $140,000 ($180,000 + $180,000 + $100,000 less $200,000 less $120,000), assuming her total superannuation balance is less than $1.6 million.
The explanatory memorandum accompanying the legislation provides the following example (Molly) of the transitional provisions, set out below. We have reworded the original example.
Example 2: Molly contributes $250,000 in September 2016: Molly is 40 and has a total superannuation balance of $200,000 as at 30 June 2016. In September 2016, she receives an inheritance of $250,000, and makes a $250,000 non-concessional contribution into her super fund account. This super contribution triggers her three-year bring forward, which is $540,000 (until 30 June 2017). From 1 July 2017, Molly’s bring-forward cap has now been lowered, due to the lowering of the annual NCC cap. Rather than a remaining bring-forward cap of $290,000 ($540,000 less $250,000), Molly can only make further non-concessional contribution of $130,000 ($180,000 + $100,000 + $100,000 less $250,000). She chooses to make a NCC of $110,000 during the 2017/2018 financial year, and $20,000 during the 2018/2019 financial year. From the 2019/2020 financial year, Molly can then access the new bring forward, and contribute up to $300,000 in non-concessional contributions, assuming her total superannuation balance is less than $1.4 million (or the higher indexed amount at that time).
Does the annual cap apply per couple, or per individual?
The annual $100,000 NCC cap and the $300,000 bring-forward cap for the 2016/2017 year, applies to each person, which means a couple could potentially make up to $600,000 in non-concessional contributions for the 2017/2018 year, assuming neither member of the couple has triggered the bring forward rule in the previous 2 years, and both individuals are under the age of 65 at the start of the financial year. For more information on the bring-forward rules, see SuperGuide article Bring-forward rule: 10 super facts you should know.
No NCCs if your total superannuation balance exceeds $1.6 million
Anyone with more than $1.6 million in super (in both accumulation and retirement phase), that is, has a total superannuation balance of more than $1.6 million, will not be able to make non-concessional contributions, and nor can they make non-concessional contributions that would mean they exceeded the $1.6 million amount in super. See table below for a quick summary.
Quoting from the explanatory memorandum (Chapter 5) accompanying the legislation, “If an individual’s total superannuation balance as at 30 June of the previous financial year, is equal to or greater than the general transfer balance cap in the relevant financial year ($1.6 million in the 2017/2018 financial year), they are not eligible for any non-concessional contributions cap in that financial year. This eligibility criterion applies in every year of an individual’s bring forward period.”.
Super alert! From 1 July 2017, an individual will not be eligible for government co-contributions if his or her non-concessional contributions exceed his or her annual non-concessional cap, OR if, at 30 June of the previous financial year, his or her total superannuation balance equals or exceeds $1.6 million. Until 30 June 2017, the size of your super account balances does not affect your co-contribution eligibility (for more information on the current co-contribution rules, see SuperGuide article Cashing in on the co-contribution rules (2017/2018 year).
The table below provides a quick summary of how the $1.6 million total superannuation balance affects non-concessional contributions, but for a more detailed explanation of how the non-concessional contributions rules interact with the $1.6 million total superannuation balance limit, see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap.
When and how does the bring-forward rule apply (from 2017/2018 year)?
|Total superannuation balance on 30 June 2017||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 .
Count your NCCs carefully to avoid excess contributions
For an individual who is aged 65 years or over, any non-concessional contributions over the $100,000 annual cap (for the 2017/2018 year) could be hit with excess contributions tax of 47%. For an individual under the age of 65, any NCCs over the $30,000 bring-forward cap (for the 2017/2018 year), could be hit with a penalty tax of 47%.
The alternative in both scenarios is to withdraw the excess contributions, which eliminates the requirement to pay 47% excess contributions tax.
If you choose to keep the excess contributions in your super fund, then the penalty tax of 47% 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 exceed the $100,000 NCC cap (if aged 65 years or over), or exceed the $300,000 bring-forward cap, 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.
Background: 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 non-concessional contributions from your super fund and earnings on those contributions will count towards your personal taxable income, plus you will have to pay a small charge for those earnings 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 47% 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 47% (and 49% for the 2016/2017 year, or 2015/2016 year or 2014/2015 year). For more information on excess contributions, see SuperGuide article Excess contributions rules: A quick summary.
Super alert! From 1 July 2017, if you exceed your non-concessional contributions cap in a financial year, then you will not be eligible for a government co-contribution (for more information on co-contribution rules, see SuperGuide article Cashing in on the co-contribution rules (2017/2018 year)).
Additional 2017/2018 Contributions Guides
Click on the links below to access SuperGuide’s other contributions guides:
- Super concessional contributions: 2017/2018 survival guide
- Cashing in on the co-contribution rules (2017/2018 year)
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 2017/2018 year, as occurs for the 2016/2017, 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 (2017/2018 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 2017/2018 year, or 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. For more information on personal income tax rates, see the following SuperGuide articles:
- Australian income tax rates for 2017/2018 and 2016/2017 years
- No tax in retirement because you SAPTO
- Income tax cut for 2017/2018 year (and for 2016/2017 year).
Whatever happened to the $500,000 lifetime NCC cap planned from 3 May 2016?
If you’re still wondering what happened to that $500,000 lifetime cap that Treasurer Morrison was banging on about, it is no longer going to happen. The policy was scrapped and then mixed into the humble pie that the Liberal backbenchers baked for the treasurer.
The policy the treasurer planned to impose was: Taking effect from 7.30 pm on 3 May 2016, a $500,000 lifetime cap would have applied to non-concessional contributions, and all non-concessional contributions made since 1 July 2007 would be included in that lifetime cap. And if you had made more than $500,000 in non-concessional contributions (NCC) from 1 July 2007 through to 7.30 pm, 3 May 2016, then you would be deemed not to exceed your lifetime cap. If you then made further NCCs however, post 3 May 2016, you would exceed your lifetime cap and the extra contributions would be subject to the excess contributions rules.
The $500,000 lifetime cap is not going to apply. Instead the $180,000 annual cap applies for the 2016/2017 year, and an annual $100,000 cap applies from 1 July 2017 (for the special conditions of this new cap, refer earlier in this article or see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap).
Background: 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). Although this change was intended to have immediate effect, from 3 May 2016 (7.30pm), it was also subject to the Coalition convincing its backbenchers and the independent MPs that this proposed change to the after-tax contributions cap was fair and not retrospective. If Treasurer Morrison had had his way, the annual $180,000 non-concessional contributions cap, which was applicable in previous financial years and for most of the 2015/2016 year, would no longer apply from 3 May 2016. Australians were to 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 would be no longer available).
At the time of the government announcing this retrospective policy, I wrote: “Good luck with that!” I also wrote that the super industry and many Liberal MPs were opposed to this measure, so the final details may change.
I am pleased to write that Treasurer Morrison had no luck with his $500,000 lifetime retrospective cap: not only did the final details change, the entire policy has been scrapped, although the replacement policy is more complex.
As reported at the time, and mentioned earlier in this article, 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 that 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. For more information on the bring-forward rule, see SuperGuide article Bring-forward rule: 10 super facts you should know, and for more information on the new cap refer earlier in this article, or see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap.
History of NCC cap: 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 earlier in 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 taking effect from 1 July 2017, and from 1 July 2017, the government has replaced it with a smaller annual cap of $100,000.
For more information on non-concessional; contributions…
For more information on the rules applicable to non-concessional contributions, see the following SuperGuide articles: