Budget Backflips – 500k Lifetime Cap Gone
Today the Government announced significant changes to the proposed superannuation reforms, providing clarity and certainty for financial planners and clients around Superannuation.
The news that the retrospective $500,000 lifetime non-concessional cap has been removed is something the we as advisers have been actively advocating for on behalf of members since the Federal Budget.
Below are the key proposals:
- The $500K lifetime Non Concessional Contributions (NCC) Cap has been dropped.
- The Government has instead announced a reduction of the current annual NCC Cap from $180K to $100K from 1 July 2017. This will mean your clients can continue to contribute NCCs of up to $180K, and use the bring forward to $540K this financial year. The 3-year bring forward provisions will remain as per the current provisions based on the lower cap. No NCC contributions will be allowed once the proposed $1.6Million transfer cap has been reached.
- The reduction to a $25K NCC cap will remain in place and commence from 1 July 2017.
- The concessional contribution catch up provisions have been delayed and will now not commence until the 2019/2020 financial year.
- The Government has confirmed that Division 293 tax on Super will be reduced to individuals with salaries above $250,000 p.a.
- The government has changed their mind on the removal of the work test for those aged over 65.
Teasurer Scott Morrison announced the changes this morning and said the government will replace the $500,000 proposal with a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000..The move will cost government revenue $400 million over forward estimates but Morrison said introducing eligibility for non-concessional contributions to those with less than $1.6 million in superannuation limits the cost of this change over the medium term.
He added: “In order to fully offset the cost of reverting to a reduced annual non-concessional cap, the Government will now not proceed with the harmonisation of contribution rules for those aged 65 to 74. While the Government remains supportive of the increased flexibility delivered by this measure, it can no longer be supported as part of this package, without a net cost to the Budget.”
Under the reworked package, individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation. Morrison said this will encourage individuals to remain engaged with the workforce which is of benefit to the economy more generally.
Individuals aged under 65 will continue to be able to “bring forward” three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums. The overwhelming bulk of such larger contributions are typically less than $200,000, Morrison said.