In the budget, the government proposed introducing a $500,000 lifetime cap for non-concessional contributions.
The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning, the government said.
The SMSF Association noted it includes contributions made since 1 July 2007, which it said “adds an unfair element of retrospectivity” to the proposed change.
The government said that as it stands, less than one per cent of superannuation fund members have made contributions above this cap since 2007.
“No retrospectivity will be applied to individuals who may have made non-concessional contributions in excess of the $500,000 lifetime threshold between 1 July 2007 to 3 May 2016,” explained the SMSF Academy’s managing director Aaron Dunn.
“However, any excess contributions made after commencement will need to be removed or else be subject to penalty tax,” he said.
In its post-budget report, Accurium explained the lifetime non-concessional cap will replace the existing non-concessional contributions cap, which allows an individual to contribute up to $180,000 per year – or $540,000 under the bring-forward provision for those aged under 65.
“Non-concessional contributions made into defined benefit and constitutionally protected funds will also be included in an individual’s lifetime non-concessional cap. If the member of a defined benefit fund exceeds their lifetime cap, contributions going into the defined benefit account can continue. However, they will be required to remove an equivalent amount (including earnings) annually, from any accumulation interest they hold where it contains non-concessional contributions made after 1 July 2007,” Accurium’s report said.
“In cases where no post-1 July 2007 non-concessional contributions exist, the government will consult to determine the appropriate treatment,” Accurium said. “Contributions will not be required to be removed from the defined benefit account.”
Several industry representatives are apprehensive about this particular change, including PwC’s director of private clients, Liz Westover.
“This definitely inhibits the ability for people to get money into super. I don’t agree with this particular measure and I’m really surprised that it takes effect from [last night]. If they made changes to the contribution caps, I would’ve expected it to take effect from the start of a financial year,” Ms Westover told SMSF Adviser.
Peter Burgess, SuperConcepts' general manager for technical services and education, expressed similar concern.
“Clearly this budget is designed to enhance the integrity and equity of the superannuation system by reducing the extent to which superannuation is used for tax minimisation and estate planning purposes. Of concern is the retrospective nature of some of the measures, particularly the need to count non-concessional contributions made since 1 July 2007 towards your $500,000 lifetime cap,” he told SMSF Adviser.
Keeping track of non-concessional contributions, particularly backdating to 2007, will be particularly challenging from an administration perspective. However, the SMSF Association’s head of policy Jordan George told SMSF Adviser he understands the ATO will play a role in administering this measure.
“That may alleviate some of the compliance burden on taxpayers,” he said.