Contribution Cap Increase: draft legislation released

The proposal by the Government to increase the concessional contributions cap for taxpayers aged 50 or more has been released for public comments.

The proposal (announced as part of the 5 April 2013 pre-budget super changes) is to increase the concessional contributions cap to $35,000 (up $10,000 from the current cap of $25,000).

This change will occur on 1 July 2013 for taxpayers who are aged 60 or more on 1 July 2013 (or who subsequently attain age 60).

This change will occur on 1 July 2014 for taxpayers who are aged 50 or more on 1 July 2014 (or who subsequently attain age 50).

The $35,000 cap is not indexed.

The limits of this proposal should be noted.  The increase is only a temporary increase for older taxpayers.  The temporary increase will cease once the general concessional contribution limit (currently $25,000) has reached $35,000 by indexation – when indexation resumes from 1 July 2013.  The Government expects the general concessional contribution limit to reach $35,000 in respect of the 2018/19 financial year.

The temporary increase in the concessional contribution does not affect the non-concessional contribution cap.  The non-concessional contribution (and the “bring forward of the cap”) will only change if and when the general concessional contribution cap increases.

For ease of drafting but not for users, the temporary increase in the concessional contribution cap for older taxpayers will be set in the Income Tax (Transitional Provisions) Act 1997 and not in the Income Tax Assessment Act 1997.

From 1 July 2013 to find the legislative basis for the concessional contribution caps, you will have to remember first to look at s292-20 of the Transitional Provisions Act 1997 and then look at s292-20 of the 1997 Assessment Act.  Unfortunately if you were to only look at s292-20 of the 1997 Assessment Act you will not get the entire picture as it does not cover “temporary or transitional” variations to the main rules.

As a one-line assessment of this proposal – think yourself lucky that the Government has granted this meagre concession – but don’t think about the limit of $50,000 which applied to everyone only a few years ago.