Government Dumps Lifetime Concessional Cap Limit

September 15, 2016

Basic common sense has prevailed today with the Federal Treasurer (and Member for Cook) Scott Morrison and Minister for Revenue and Financial Services Kelly O’Dwyer announcing that the Budget decision to have a lifetime non-concessional cap of $500,000 has been dropped.

Instead the Government announced a reduction of the current annual non-concessional cap from $180,000 per annum to $100,000 per annum from 1 July 2017.

This means for the current financial year that people can still continue to contribute their own money into superannuation of up to $180,000. They can also use the three-year bring forward provisions and contribute $540,000 of their own funds this financial year. 

The Government announced that the proposed $1.6 million Allocated Pension cap will be retained, as will the reduction to a $25,000 per annum concessional contribution cap that will remain in place and commence from 1 July 2017.

Clearly the removal of the $500,000 non-concessional cap is important as had it been maintained, it would be very difficult for even high income earners to build a superannuation balance to required $1.5 million they will need when retiring in the next 10 years (refer to May’s blog: Will your Super Keep you Above the Poverty Line?). 

With the relaxation of the concessional cap it will now be possible, with the right planning, for people to attain that $1.5 million strategic target. The superannuation legislation of course will still need to get the support from both political parties and it will need to pass through the senate.

I was working on a complex client situation when this change was announced. Reworking the numbers for the proposed changes will benefit this particular client, not just in being able to be more financially independent in retirement, but in ensuring that the client is able to use the bring forward provisions so that there will be no tax upon death. For this particular client it is a saving of $89,000 in tax to his estate if the proposed non-concessional cap limit was not dropped.

While the Government and Treasury work on their big picture numbers, it is at the coal face in dealing with these complex clients situations where reality is and where the financial benefits can be gained.  

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