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NCC issues – the transitional rules


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.

Many financial services professionals and their clients have refrained from making NCCs, due to the uncertainty surrounding the May 2016 Budget announcement and pending legislation being introduced to, and passed by, Parliament. Those clients may now be in a position to make NCCs and it may be attractive for them to do so prior to 1 July 2017.

Understanding the interaction of the current NCC rules and those proposed to be effective from 1 July 2017, including the transitional arrangements, will help financial services professionals develop strategies for their clients which maximise their NCC capacity.

The current NCC rules allow NCCs of up to $180,000 per year, plus the opportunity for those who are under age 65 at any time in the 2016/17 income year to ‘bring forward’ an additional two years of annual NCC capacity into the current year. So up to $540,000 of NCCs may be contributed before 1 July 2017.

The 15 September proposals reduce the annual NCC limit from $180,000 to $100,000. The bring forward provision will still be available, but the maximum total NCCs will be only $300,000.


The transitional rules

The Budget 2016 Superannuation Fact Sheet 04 states that:

If an individual has not fully used their non‑concessional bring forward before 1 July 2017, the remaining bring forward amount will be reassessed on 1 July 2017 to reflect the new annual caps.

The intention appears to be a ‘use it or lose it’ opportunity in relation to the current NCC bring forward capacity. If the bring forward option is not triggered in either the 2015/16 or 2016/17 income years, the transitional rules will not apply, and the future bring forward opportunity will be limited to $100,000 per year for two years. This is a total NCC capacity of $300,000.

If the bring forward has been triggered, then ordinarily the full $540,000 NCC capacity would be available over the three period. However to the extent that the full $540,000 has not been contributed by 1 July 2017, the bring forward NCC cap will be reassessed and scaled back effective from 1 July 2017. The new NCC capacity will be based on the lower annual NCC cap of $100,000 (a reduction of $80,000 per year previously brought forward).

The loss of NCC capacity is illustrated in the following example, adapted from the Budget 2016 Superannuation Fact Sheet.


Example: triggering the bring forward in 2016/17

Molly is 40 and has a superannuation balance of $200,000. In September 2016, she receives an inheritance of $250,000, which she contributes to super as an NCC. As this NCC is greater than $180,000, it triggers the bring forward option.

The following table shows the impact of the transitional rules on Molly’s bring forward NCC cap. It is reduced by $160,000 from 1 July 2017, which represents the reduction in the annual NCC cap in the 2017/18 and 2018/19 income years.

Year2016/172017/182018/192019/20
Annual NCC cap $180,000 $100,000 $100,000 $100,000
Bring forward NCC cap $540,000 $290,000 reduced to $130,000 $20,000 $300,000
Actual NCC $250,000 $110,000 $20,000 Nil
Remaining NCC capacity $290,000 $20,000 Nil $300,000

Molly contributes $110,000 of NCCs in 2017/18 and $20,000 in 2018/19. She can then access the new bring forward capacity from 2019/20 and contribute up to $300,000.

Molly’s total NCCs over the three year period is $380,000. However, she could contribute $540,000 if she ensures this NCC is made before 1 July 2017.


Example: maximising NCC capacity

Alex (age 52) has recently sold an investment property and is hoping to contribute as much as possible to super.

Alex’s adviser suggests two NCC options, based on Alex’s current account balance of $350,000.

Option 1 – use bring-forward in 2016/17:

Year2016/172017/182018/192019/202020/21
Annual NCC cap $180,000 $100,000 $100,000 $100,000 $100,000
Bring forward NCC cap $540,000 Nil Nil $300,000 Nil
Actual NCC $540,000 Nil Nil $300,000 Nil

Option 2 – use bring-forward in 2017/18:

Year2016/172017/182018/192019/202020/21
Annual NCC cap $180,000 $100,000 $100,000 $100,000 $100,000
Bring forward NCC cap $540,000 $300,000 Nil Nil $300,000
Actual NCC $180,000 $300,000 Nil Nil $300,000

Option 1 allows Alex to potentially contribute $840,000 in total by 1 July 2019 (the earliest contribution date in 2019/20), while option 2 allows only $780,000 by 1 July 2020 (the earliest contribution date in 2020/21).

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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