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Understanding the $500,000 Lifetime Cap on Non-Concessional Contributions

Planning for your retirement just got a lot trickier and harder with the Government’s May budget announcement stirring up confusion for many retirees especially when it comes to how much they tuck ‘after-tax’ monies into super. Subject to legislation, many proposed changes do not come into effect until 2017 but others such as the ‘$500,000 Lifetime Cap on Non-Concessional Contributions’ requires immediate attention.

Here’s a Frequently Asked Question (FAQs) on the $500,000 Lifetime Cap on Non-Concessional Contributions extracted from the Australian Budget website.*

On May 3 2016, the Government introduced a $500,000 lifetime cap on non-concessional contributions taking into account all non-concessional contributions made since  July 2007. The cap will apply to individuals aged up to 75, and will be indexed in $50,000 increments in line with wages.

Is the $500,000 cap retrospective?

• No. The $500,000 lifetime cap on non-concessional contributions is not retrospective.**
• Those over the cap before the Budget night will not be required to withdraw amounts from superannuation and will not be subject to any penalty.

What do I do if I’m unsure whether I have $500,000 in non-concessional contributions?

• The ATO will be updating the online display of superannuation accounts through MyGov to include an individual’s non-concessional lifetime balance, and the ATO will work towards identifying and contacting individuals who are close to or have exceeded their lifetime non-concessional cap.
• In the interim, it is recommended individuals who believe they may be affected by the new lifetime cap consult their funds, accountants or financial advisers to obtain information on their non-concessional contributions.
• Once notified by the ATO, individuals who inadvertently exceed the cap will have to withdraw the excess amount.

If I have made more than $500,000 of non-concessional contributions before budget, do I need to remove the excess contributions from my super account?

• No. However, you will not be able to make any further non-concessional contributions.

What happens if I make a contribution after Budget night that takes me over the non-concessional cap?

• People who exceed the cap after Budget night will be notified by the ATO. At this point they will be asked to withdraw the amount contributed above the $500,000 non-concessional cap, along with any associated earning.
• If the individual withdraws the excess at this point, the earning on the excess amount will be taxed at their marginal tax rate and they will receive a 15 per cent tax offset for the tax charged in the fund.
• Penalties will apply should the individual choose not to withdraw their excess.

What about small business people? Do they still get the additional CGT cap?

• Yes. The special rules that apply to small business contributions will continue to be available and will be in addition to the $500,000 lifetime non-concessional cap.
• Eligible small business owners can make superannuation contributions that do not count towards their non-concessional contributions cap where the contribution is the proceeds from the disposal of a CGT asset that is exempt from CGT under the 15 year exemption or the retirement exemption.

End of Q & A extraction.

The key message to take out: You need to be on ‘top of things‘ with your super, and ensure you monitor your contributions to not exceed the limit. When it comes to making any super decisions, best to check-in with your adviser before rather than after to avoid any unwanted consequences.

*Sourced from the Australian Budget 2016-17 website (www.budget.gov.au)

** Subject to legislation & election results.

Related Previous Article: Budget 2016 Update: Big Changes to Super & more

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