$500,000 cap scrapped — and other superannuation “changes” announced

First of all, one wonders what has stayed the same in the rolling circus of superannuation reforms. $500,000 cap scrapped — and other superannuation “changes” announced

The government has just announced what it terms “improvements” to the superannuation announcements that it made in the 2016-17 federal budget.

In a media statement, Kelly O’Dwyer, Minister for Revenue and Financial Services, revealed that a number of changes will be made. The new developments are:

  • the $500,000 lifetime non-concessional cap proposal is to be scrapped
  • the non-concessional contributions cap is going to be $100,000 per year, starting from July 1, 2017
  • taxpayers with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions from the same date.

Some of the previously announced measures will not proceed, and have been postponed or abandoned altogether. These include:

  • commencement of catch-up contributions using the unused caps from the prior five years for people with balances of $500,000, which is postponed to start from July 1, 2018
  • harmonisation of acceptance of contribution rules for those aged 65 to 74 will not proceed at all.

The rules that remain intact and continue to operate are:

  • the rule allowing fund members to “bring forward” three years’ worth of non-concessional contributions for individuals aged under 65
  • the requirement to meet the “work test” for individuals over the age of 65 in order to make non-concessional contributions.

Those superannuation fund trustees who were required to finalise contracts that depended on large non-concessional contributions can be at ease now, as the caps and rules regarding the non-concessional contributions will operate as before. The same applies to trustees who are required to restructure their limited recourse borrowing arrangements (LRBAs) in order to comply with the ATO’s benchmark terms.

The work test continues to apply to taxpayers over the age of 65 seeking to make non-concessional, personal concessional and salary sacrifice contributions.

It is disappointing to see the opportunity to streamline and simplify the acceptance of contributions rules being scrapped. This is more so because other remaining measures, such as the $1.6 million pension transfer cap, are going to add to the plethora of rules with which superannuation trustees will need to comply.

 

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