On 15 September 2016, Treasurer Scott Morrison and the Minister for Revenue and Financial Services Kelly Dwyer issued a joint media release announcing that the proposed $500,000 non-concessional superannuation cap policy is now scrapped. It will be replaced with an annual $100,000 non-concessional cap, that is subject to legislation from 1 July 2017. The current $180,000 cap and the three year $540,000 bring-forward cap will both remain until 30 June 2017.
A contribution cap is a limit on the amount that you can contribute to your super every financial year. Where the contribution cap amount is indexed annually. As such contributions that exceed the cap may be liable for extra tax on the excess.
The proposed $500,000 non-concessional superannuation cap policy would have been indexed annually in line with average weekly ordinary time earnings (in $50,000 increments). Whereas, now the annual $100,000 non-concessional cap will be indexed in line with the $25,000 concessional (before-tax) cap. This $25 thousand concessional contributions cap however, will apply to everyone regardless of age.
The maximum amount per person may transfer into their tax-free retirement/pension phase will be $1.6 million, that is unlike the current unlimited superannuation balance which may be treated as tax-free upon an individual’s retirement.
Where any excess amount will be held at the 15 per cent tax rate accumulation phase super account. Even though, superannuation contributions have been corrected, the new annual non-concessional cap causes individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions.
For those under $1.6 million in super, they can make up to $100,000 a year in non-concessional contributions. As the $1.6 million superannuation transfer balance cap will be indexed at $100 thousand increments that increases with the consumer price index rate of inflation.
Also, for those under 65 years of age can choose to bring forward three years’ worth of their annual cap, meaning Australian’s under the age of 65 can make up to $300 thousand in non-concessional contributions annually. The threshold will also come in place for those not yet at the retirement age.
Additionally, the transfer balance cap applies to each individual, meaning a couple could have up to $1.6 million each in separate pension accounts. However, for current retirees a single pension account in an individual’s name could be supporting a couple. This means the expected cumulative $3.2 million cap would be subjected now to the $1.6 million cap.
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