As outlined in last week’s federal budget, the government plans to introduce a $500,000 lifetime cap for non-concessional contributions, effective from 7.30pm AEST on Tuesday 3 May, and taking into consideration all contributions made since July 2007.
The government is yet to make clear whether there will be a carve out for taxpayers who receive personal injury payments.
Colin Lewis, Perpetual’s senior manager for strategic advice, explained that people receiving these payments are currently given a window of 90 days to put that money into superannuation, without it being counted towards their non-concessional cap.
They can then move that money into the pension phase, however, the government has proposed a $1.6 million cap on the total amount of superannuation that can be used to commence a pension. If the Turnbull government remains in power, this will likely apply from 1 July next year.
“They move it into the pension phase to provide themselves with a tax-effective income stream for the rest of their life to meet their cost of living and their health costs – because most of these people have quite significant healthcare costs for the rest of their life,” Mr Lewis told SMSF Adviser.
Given that personal injury payments can be in the order of millions, these new rules would have a significant impact on the affected clients.
“The question we’ve got is: what do we do with that money, do we accept it or not? We believe we’ll take the view to accept it. We can’t afford for it to go beyond 90 days, because they’ll never have the opportunity to get it back into super, and hope there will be a carve out for personal injury,” Mr Lewis said.
“If you’re giving advice around this area, the issue is you could be up for compensation payments, because you’ve given bad advice,” he add.
It’s also unclear what the penalty regime is for the proposed lifetime contribution caps, and if personal injury payments will be exempt from this.