By Monica Rule The Australian 16 May 2017
With so many superannuation changes happening from July 1, you could be forgiven for not understanding all aspects of the new laws.
One new law that affects the amount that you can contribute into your superannuation fund is the very important cap on non-concessional (post-tax) super contributions, which will be set at $100,000 per annum.
The cap does not restrict you from putting more money into super if you want to. It just limits the amount that will be exempt from tax. Anything in excess of the limit will attract tax.
If it was just the limit on the cap that changed, it would be easy to understand.
However, the federal government changed the law, so there are other criteria that need to be satisfied before you can make contributions into your superannuation fund.
It also put an eligibility threshold on how much you can contribute. So from July 1, you have to check two things. Can you make non-concessional contributions into your super fund and how much can you contribute?
You need to make sure your total superannuation balance is below $1.6 million to be able to make non-concessional contributions into your fund. Then the amount that you can contribute is based on the following thresholds:
• If your super balance is less than $1.4m, you can contribute up to $300,000 in non-concessional contributions.
• If your super balance is $1.4m and below $1.5m, then you can contribute up to $200,000 in non-concessional contributions.
• If your super balance is $1.5m and below $1.6m, you can contribute up to $100,000 in non-concessional contributions.
• If your super balance is $1.6m or more, then you cannot make any non-concessional contributions.
You will only be eligible to make more than the $100,000 non-concessional contributions if you are under 65 at any time in the year of the contributions and you have not fully used your bring-forward cap in the past two financial years.
If you are already 65 or over on July 1, you are limited to making just the $100,000 annual limit, provided your super balance is less than $1.6m.
What many superannuation members may not realise is that if your super balance is $1,599,999 it does not mean you can only contribute $1. You can actually contribute up to $100,000, because you are still considered to be below the threshold.
The $1.6m total super balance is tested each financial year. This means, even if you qualify for the two-year bring-forward limit, it does not guarantee that you will be able to contribute up to $300,000 over three consecutive years.
For example, let’s assume at June 30 your super balance is $1,399,999. Then in the 2017-2018 financial year you contributed $150,000 in non-concessional contributions and triggered the two-year bring-forward cap of $300,000.
Then at June 30, 2018, due to good investment performance, your super balance increased to $1.6m. Although you have only used half of your $300,000 bring- forward cap, you will not be able to make any further non-concessional contributions in the 2018-2019 financial year.
If your good investment performance continues, and your super balance stays above $1.6m in the following year, it means you will lose the balance of your unused bring-forward cap.
Separately, in last week’s federal budget, the government allowed a small variation to these forthcoming rules on non-concessional superannuation contributions for those who sell their home when downsizing … but we will leave that issue to another time.
Monica Rule is an SMSF specialist