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SUMMARY: Some of the finer points of getting money into super via NCCs, under the new, post-July, rules.
It’s time to delve a little further into the nitty-gritty of getting money into super post 1 July this year.
We’ve spoken broadly about the new contributions limits. There are limits around putting money into super when you’ve got $1.6m in super already. And you can only make catch-up concessional contributions (CCs) it you’ve got less than $500,000 in super.
But how are these things measured? And how do they interact with the other rules around contributions.
Judging by the volume of questions I’m fielding, there is a lot of confusion, in areas that have already been covered, to a degree, by deeper elements of what has already been announced.
Let’s start with the three-year pull-forward rules.
Non-concessional contributions (NCCs)
As it stands, for the current financial year, the NCC limit is $180,000 a year. And, if you’re eligible, you could potentially get in $540,000 (3 x $180,000) into super this year, using the pull-forward provisions.
From 1 July 2017, the annual NCC limit drops to $100,000 a year. And, therefore, the most that can be put in during a single financial year will be $300,000 (3 x the new NCC limit of $100,000), if you’re eligible to make the contribution.
One of the most regular questions I’m receiving goes something like this: “If I have just less than $1.6m in super on 1 July 2017, can I use use the pull-forward provisions to get $300,000 into super?”
No.
What has been announced is that you will only be able to use pull-forward provisions to the extent that it will allow you to go just a little bit (that is, less than $100,000) over the the $1.6m limit.
If you have between $1.3m and $1.4m in super on 1 July, then you could potentially make $300,000 worth of NCCs. Taking the mid-point of $1.35m, you would be able to contribute $300,000, which would take you to $1.65m in total superannuation balance (TSB, which I’ll come back to).
If you have between $1.4m and $1.5m, you will be able to use two years of NCCs. That is, the $100,000 for the current financial year and $100,000 for a future financial year. Again, taking the mid-point, if you had $1.45m in super, you would be able to get to $1.65m.
But if you have between $1.5m and $1.6m in super, then you will only be able to make NCCs of $100,000. No actual pull-forward allowed for you.
Total Superannuation Balance
How much do you have in super, in regards to the these caps?
It pretty much encompasses everything you have in super. Your accumulation benefit, your pension benefit and any money that is in the middle of being rolled over from somewhere else (they must have thought some people would try to abuse the system while some money was “in-between” funds).
It is reduced only by any amount that relates to a “structured settlement” contribution – which largely relate to compensation payments.
Transitional rules for NCC pull-forwards
There are transitional rules for those who triggered the pull forward rule – by contributing more than $180,000 in either of FY16 or FY17.
You trigger the pull-forward rules by contributing more than the annual limit ($180,000) in this financial year, or more than $100,000 in FY18 or onwards.
In essence, if you triggered it in FY16 or FY17, you will receive a limit of $180,000 for the years up to and include FY17 and $100,000 for the years after.
For example, if you put in $250,000 in FY16, you will have a limit for FY16, FY17 and FY18 of $460,000 ($180,000 for FY16, $180,000 for FY17 and $100,000 for FY18). Following that $250,000 contribution, you will be able to contribute a further $210,000 during the FY17 and FY18 years.
If you trigger the pull forward with a $250,000 contribution in FY17, then you will have a total NCC limit of $380,000 for FY17, FY18 and FY19.
But, obviously, in order to make those contributions, you still need to meet eligibilty criteria to contribute, which might include the work test and being under $1.6m in total super benefits.
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When it comes to making contributions to your super, it’s going to pay to know the finer details. Particularly for those close to the new limits.
And judging by the emails I’m receiving, there is plenty of confusion. Superannuation has changed. And it will pay to have the right answers, to know what you’re doing … or you simply must see someone who does know the rules so that you don’t get it wrong.
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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
Bruce Brammall is managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au . Bruce’s new book, Mortgages Made Easy, is available now.