Are you ready for the 1 July 2017 super changes? Part 4: I want to trigger my 3 year bring forward NCC cap – how much can I contribute?
As part of the superannuation reforms announced in last year’s Federal Budget, both concessional and non-concessional contributions caps will be reduced significantly from 1 July 2017. In this month’s article, we will focus on the latter and how the non-concessional contributions (“NCC”) caps may be different for each individual, depending on the contribution history in the lead up to 30 June 2017.
Current rules – to 30 June 2017
|Age||Annual Cap||3 year Bring Forward Cap|
|Aged < 65 years old||$180,000||$540,000|
|Aged 65 – 74||$180,000||Cannot be made|
|Aged 75 and over||Cannot be made||Cannot be made|
For members that are aged 65 and less than age 74, the work test must be met prior to the NCC being made. To meet the work test, an individual is to be gainfully employed for at least 40 hours over 30 consecutive days in each financial year in which contributions are made. Unpaid work such as volunteer work does not meet the definition of gainful employment.
Example 1: I’m aged 64 now (April 2017) and would like to make a NCC of $540,000 before 30 June 2017? Can I do this?
Yes – provided you have not exceed the annual cap in 2015 and 2016 financial years.
Example 2: I’m aged 64 now (April 2017) and would like to make a NCC of $200,000 before 30 June 2017 and previously made a NCC of $300,000 in the 2016 financial year – can I do this?
Yes – you triggered your 2 year bring forward cap in the 2016 financial year via the $300,000 NCC thereby leaving you with a cap of $240,000 in the 2017 financial year. As $200,000 is less than $240,000 you are eligible to make an NCC of $200,000 by 30 June 2017.
Example 3: I’m aged 65 now (April 2017) and would like to make a NCC of $200,000 before 30 June 2017 and previously made a NCC of $500,000 in the 2015 financial year – can I do this?
No – you triggered your 2 year bring forward cap in the 2015 financial year via the $500,000 NCC thereby leaving you with a remaining cap of $40,000 for the 2016 and 2017 financial years. Therefore, you are only eligible to contribute up to $40,000 by 30 June 2017 provided you have met the work test prior to making the contribution.
New rules – from 1 July 2017
From 1 July 2017, the NCC caps are significantly reduced and one’s total superannuation balance will impact their ability to make these contributions.
|Aged < 65 years old||$100,000
(provided your total super balance is < $1.6m)
|Aged 65 – 74||$100,000
(provided your total super balance is < $1.6m)
|Aged 75 and over||Cannot be made|
Homer is aged 67 and Marge is aged 59 have their own SMSF and as at 30 June 2017, their respective member balances are $1.55m and $2.15m as at 30 June 2017. What are their NCC caps for the 2018 financial year?
Homer’s NCC cap for will be $100,000 and will need to meet the work test. Marge’s NCC cap will be $0.
Transitional Bring Forward rules – from 1 July 2017
Going forward the transitional bring forward rules are even more complex. To be eligible to make NCCs the following eligibility criteria must be met:
- the member contributes more than the annual cap of $100,000;
- total super balance is less than the general transfer balance cap of $1.6m;
- the member was under the age of 65 at any time during the financial year;
- the bring forward was not triggered in the last 2 financial years; and
- the difference between the general transfer balance cap of $1.6m and the member’s total super balance is higher than the general NCC cap of $100,000.
The available bring forward cap for a member will be either 2 or 3 times the annual cap ie. $380,000 or $460,000*.
|Year the Bring Forward Provisions are triggered||Amount||Transitional cap from 1 July 2017|
($180k + $180k +$100k)
|2016 /17||> $180,000||$380,000
($180k + $100k +$100k)
|2017/18||> $100,000||Up to $300,000
Depending on total super balance
|Total Superannuation Balances across all funds||Bring Forward Cap||Time frame|
|< $1.4m||$300,000||3 years|
|$1.4m to $1.5m||$200,000||2 years|
|$1.5m to $1.6m||$100,000||No bring forward|
|$1.6m and over||N/A||N/A|
* Note: whether a member will actually be able to use any unused bring forward amount in fuure years will depend on their total superannuation balance on 30 June of the year before they intend on using it. As such the above transitional caps will differ for each individual.
Dorothy is 54 years old with a total super balance of $750,000. In December 2015, she made a NCC of $250,000 and no further NCCs during 2015/16 – as such, she triggered the current bring forward cap of $540,000.
Hence in Year 2 (2016/17) her available NCC cap will be $290,000 = $540,000 –$250,000 (year 1 contribution).
She then decides to make a NCC of $100,000 on 1 June 2017 which means her remaining NCC cap for Year 3 (2017/18) will be the transitional rules. ie. in Year 3 (2017/18) her available NCC cap will be $110,000 = $460,000 (transitional cap) – $250,000 (Year 1 contribution) – $100,000 (Year 2 contribution)
Casper is aged 60 with a total super balance of $1m on 30 June 2017. During 2016/17 he makes a NCC of $250,000 and triggers his bring forward.
Under the transitional rules, the available bring forward for the next 2 years (2017/18 and 2018/19) will be limited to $380,000 (ie. $180,000 for 2016/17 + $100,000 for 2017/18 + $100,000 for 2018/19) less the $250,000 contribution made in 2016/17, being $130,000.
If the fund’s investments performed very well and Casper’s super balance then became $1.62m as at 30 June 2018 then he would not be able to make any further NCCs in 2018/19, despite him having an amount of unused bring forward available.
This highlights that though the transitional provisions determine the amount of the available bring forward for future years, it does not eliminate the requirement to have a total super balance of less than $1.6m on 30 June in the year before utilising the bring forward.
The NCC cap remains at $180,000 or $540,000 under the 3 year bring forward rules up until 30 June 2017 therefore leaving only a small window of opportunity of about 1.5 months to take maximise these caps.
From 1 July 2017 the NCC caps are not as generous and for the first time, total super balances will impact contribution eligibility.