$1.6m non-concessional contributions threshold

From 1 July 2017, it seems that the precondition for making non-concessional contributions is that the taxpayer’s superannuation balance must be less than $1.6m.  The balance will be measured at the start of the financial year in which the contribution is made and is a “global” balance covering all of the superannuation interests of the taxpayer, irrespective of the superannuation entity in which a superannuation interest is held.

Consequently, whether non-concessional contributions can be made in respect of 2017/18 depends on whether the superannuation balance of the taxpayer is less than $1.6m at 30 June 2017.

The $1.6m threshold will be indexed in increments of $100,000 and by reference to the consumer price index.

The $1.6m is a threshold and not a cap.  If the superannuation balance at 30 June 2017 is $1,590,000 then the taxpayer can make a $100,000 non-concessional contribution for 2017/18.  That is, the amount of the non-concessional contribution is not limited to $10,000 (being the amount necessary to reach the threshold).  However, if the superannuation balance at 1 July 2017 was $1,610,000, the taxpayer could make no non-concessional contribution for 2017/18.

It seems (though this is yet to be confirmed) that once the $1.6m threshold is reached, the taxpayer will not be permitted to make any further non-concessional contributions within in respect of the current financial year or any subsequent financial year.  In particular, if the threshold is increased by indexation, a taxpayer whose superannuation balance has previously reached the $1.6m threshold would not be entitled to make any further non-concessional contributions.  Additionally, if the threshold is reached but the superannuation balance subsequently decreases (eg due to negative investment earnings) the taxpayer will also not be permitted to make further non-concessional contributions.  

Comment:  The $1.6m is a threshold not a cap.  Determining whether a taxpayer has or has not exceeded the cap presents difficult issues for SMSFs given that currently, member balance figures for a current financial year are generally not determined until 9 or more months into the financial year.