Government About Face On Lifetime Super Cap
The Turnbull Government announced on Thursday a U-turn in respect of the budget announcement proposing a $500,000 lifetime non-concessional contributions cap on superannuation.
The controversial cap, which had the practical effect of being backdated to 1 July 2007, is proposed to be replaced by a measure allowing people to make both concessional and non-concessional contributions up until the retirement account cap of $1.6 million has been reached.
The new mechanism proposes a yearly cap of $100,000 on non-concessional contributions, as opposed to the existing annual cap of $180,000. The new yearly cap will include a three-year ‘bring forward’ rule for individuals aged under 65, limited to those who have a balance of $1.6 million.
Once the $1.6 million limit is reached, individuals will be unable to make further non-concessional contributions, even to an accumulation account.
Scrapping the $500,000 lifetime cap is estimated to cost the budget $400 million in revenue over four years. To recover the cost, the government has made another U turn on the plan to abolish the work test measures, which set minimum work requirements on individuals aged 65 to 74 wishing to make voluntary contributions to their super. The existing arrangements for those aged 65 and over will continue.
The government has also deferred starting catch-up concessional contributions, allowing individuals with interrupted work patterns to roll over unused contributions from the previous year, from 1 July 2017 to 1 July 2018.
Treasurer Scott Morrison announced that the revised package will save the budget $180 million over the next four years and $670 million in the medium-term. Mr Morrison stated that the new measures will help ensure that super tax concessions are not used as a tax-incentivised estate planning vehicle and will support Australians to maximise their retirement balances in the pension phase where they can access tax-free earnings.
The revised super legislation will be introduced before the end of the calendar year, with changes to have effect from 1 July 2017.
Should you have any questions in relation to the changes, or super reform in general, please contact us or speak to your ESV engagement partner on 02 9283 1666.