29/11/2016

Changes to superannuation laws were passed by Parliament last week and are currently awaiting royal assent.  Both houses agreed to the Bill without requiring any amendment.  In our last newsletter we discussed the pension transfer cap so this month we will focus on the general transfer balance cap.

The legislation introduces a general transfer balance cap (being $1.6 million for the 2017/18 financial year, which will be indexed in $100,000 increments in line with the CPI) to determine a member’s eligibility to make non-concessional contributions in a financial year.
 
This cap, which will apply from 1 July 2017, is an addition to, not in substitution of, all of the other requirements that a member has to meet before being able to make a non-concessional contribution into their superfund. The work test continues to apply for people between the ages of 65 and 74.

The member’s total superannuation balance will be assessed at 30 June before the start of each relevant financial year (being the year in which the contribution is to be made).
 
If a member is over the general transfer balance cap at that time, they are not eligible to access the non-concessional contributions cap or receive government co-contributions in that financial year. They are however still able to make concessional contributions.

The cap will apply on a taxpayer-by-taxpayer basis in respect of all of their superannuation accounts.

Being over the cap one year does not permanently prohibit the member from making non-concessional contributions, it simply prevents them from doing so each year that their total superannuation balance as at 30 June equals or exceeds the general transfer balance cap.    

Once their total superannuation balance as at 30 June goes below the general transfer balance cap, and all other contribution requirements are met, the member can contribute up to the non-concessional contribution cap in that financial year and bring forward their non-concessional cap if eligible.  It is worth noting that the relevant time to assess the member’s total superannuation balance is 30 June of the previous financial year, not the member’s balance as at the day the member wishes to make a contribution.  

The legislation has maintained the separate cap for CGT contributions ($1,415,000 - 2016/17 indexed value) and has not introduced any caps in relation to personal injury contributions.  

For the purposes of calculating a member’s total superannuation balance, the following three components are added up:

-    the accumulation phase value of their superannuation interests (i.e. the total amount of benefit that would be payable to the member if they terminated their membership);
-    the adjusted balance for their transfer balance account (i.e. the current value of the transfer balance account); and
-    any “in-transit” rollovers (i.e. superannuation benefits paid at or before 30 June, but not yet received as at 30 June, and not reflected in member’s accumulation phase value)

less any structured settlement contributions (broadly speaking these are contributions that arise from the settlement of a personal injury claim).

For the purposes of calculating the total superannuation balance, the member’s adjusted transfer balance account cannot be less than nil.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.