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NCC issues for clients with $1.6 million


Thursday 29 September 2016

The Federal Treasurer’s announcement on Thursday 15 September 2016 regarding further superannuation reform measures re-opens the door for non-concessional superannuation contributions (NCCs), after more than four months of uncertainty on the issue.

Clients who are likely to have a total superannuation balance of more than $1.6 million on 30 June 2017 will have special interest in these proposals, as this income year may be their final opportunity to make NCCs. These clients may be able to contribute up to $540,000 before 1 July 2017, depending on their eligibility to contribute to superannuation and their contribution history in 2014/15 and 2015/16.


Example: More than $1.6 million in super

Sam (age 56) has a current super balance of $1.8 million and wants to understand whether she can make more NCCs to super, given the proposed $1.6 million pension cap.

Although Sam will not be able to commence a superannuation pension with more than $1.6 million without incurring penalties, any amount in excess of the $1.6 million pension cap can remain in the accumulation phase of superannuation indefinitely. This means that upon retirement, Sam may transfer up to $1.6 million to a tax-free superannuation pension, but the balance over $1.6 million that remains in superannuation will continue to be taxed at 15 per cent.

The 15 September announcements introduce a $1.6 million super balance test for eligibility to make NCCs. The test will be based on total super account balances as at 30 June in the prior income year.

As it is likely that Sam’s total super balance will exceed $1.6 million on 30 June 2017, she will be unable to make NCCs in 2017/18 and in later income years.

However, as the current NCC rules will continue to apply until 30 June 2017, and the $1.6 million test doesn’t currently apply, Sam may contribute up to $540,000 of NCCs in 2016/17.

This year (2016/17) may be Sam’s last chance to make NCCs.


The $1.6 million NCC eligibility test

The $1.6 million NCC eligibility test will also limit the ability to trigger the bring forward option from 1 July 2017. The bring forward option will be available only to bring forward the annual cap amount for the number of full years that would take a client’s balance to $1.6 million.

Superannuation BalanceAnnual NCC and bring forward available
Less than $1.4 million $300,000
$1.4 million to $1.499 million $200,000
$1.5 million to $1.599 million $100,000
$1.6 million + Nil

It is unclear at this time how withdrawals (potentially including lump sums, pension payments and spouse contribution splits) from a super account will be treated and accounted for in this assessment process.

The Treasurer also announced that legislation to implement these measures would be released by the end of this calendar year. Financial services professionals should keep in mind that further changes to these proposals are possible.


Client letter template

Macquarie have created a client letter template that you might find useful for client communications. We are providing this material to you to assist you in educating and advising your clients. If you use the template letters you will be providing personal financial advice to the clients to whom you send the letters, so you should consider and customise the content of your letters accordingly

Download the client letter template

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