Federal Budget Q&A – Lifetime non-concessional contributions cap

To help you understand what this may mean for you, we’ve answered some of the questions our advisers are being asked. However, it’s important to remember that these announcements are proposals only, they are not yet law.

How much of your lifetime cap has already been used?

The ATO will be the source of truth for the amount of non-concessional contributions you have made. You can ring the ATO directly or your adviser can contact the ATO on your behalf.

It’s important to note that while many super funds will hold accurate records, they may not have all the details of your contributions, especially if you have changed superannuation funds.

What if your non-concessional contributions exceed the lifetime cap?

Between 1 July 2007 and Budget night (3 May 2016), the level of non-concessional contributions you have made may exceed the proposed new lifetime cap of $500,000. As these contributions were made before Budget night, then this money can remain in your fund.  What this means, however, is that you will have reached your lifetime cap and will not be able to make any future non-concessional contributions to super.

What about contributions made after Budget night?

If you have made, or are planning to make, a non-concessional contribution after Budget night, you will need to consider whether this will breach the proposed new lifetime cap.  If it does, you will have two options.  The excess contributions will need to be either:

• refunded to you and the ATO will apply tax to a   calculated amount (referred to as associated earnings), or
• retained in your fund but penalty tax will be applied.

Make sure that you discuss your options with your financial adviser before you make any decisions.

Can you make a contribution equal to the lifetime non-concessional contribution cap in one year?

Yes, the context of the super amendments suggests that the lifetime cap can be utilized in a single contribution.

In addition to the $500,000 lifetime cap, is there an annual limit?

The Budget announcement only referred to a lifetime limit of $500,000. There was no reference to an annual cap.

Does an overseas super fund transfer to your super fund count towards the $500,000 lifetime limit?

Part of the amount transferred will count towards the lifetime limit. If you have made a transfer from an overseas super fund, please speak to your financial adviser.

If these proposals are implemented, it’s important to understand how these changes may affect you. For more information, please speak to your financial adviser.

Source: IOOF