House of Representatives

Superannuation (Objective) Bill 2016

Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016

Superannuation (Excess Transfer Balance Tax) Imposition Act 2016

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Scott Morrison MP and Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

Chapter 8 - Unused concessional cap carry forward

Outline of chapter

8.1 Schedule 6 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) introduces provisions to allow catch-up concessional contributions. This will allow individuals to make additional concessional superannuation contributions in a financial year by utilising unused concessional contribution cap amounts from up to five previous financial years, providing their total superannuation balance just before the start of the financial year was below $500,000.

8.2 All references in this Chapter are to the Income Tax Assessment Act 1997 unless otherwise specified. All legislative amendments referred to in this Chapter are contained in the TLA Bill.

Context of amendments

8.3 This measure forms part of the Government's Superannuation Reform Package announced in the 2016-17 Budget. It will enhance the flexibility of the superannuation system for individuals who take time out of work or, work part-time (by and large women) or have 'lumpy' income (for example small business operators), by allowing them to make catch-up concessional contributions.

8.4 Annual concessional contributions caps can limit the ability of people with interrupted work patterns or irregular income to accumulate superannuation balances commensurate with those with more regular or steady income. Allowing people to carry forward unused concessional contributions cap amounts for a period of up to five financial years will provide them with the opportunity to 'catch-up' if they have the capacity and choose to do so.

8.5 The measure ensures that people who have not had the capacity to contribute up to their concessional contributions cap in prior years will be able to make catch-up contributions by targeting it to those individuals who have been unable to accumulate large superannuation balances.

8.6 Prior to these amendments individuals who could not fully utilise their annual concessional contributions cap in a financial year could not carry forward unused concessional contributions cap amounts.

8.7 Related measures in the Government's 2016-17 Budget Superannuation Reform Package will reduce the annual cap on concessional superannuation contributions to $25,000 and allow all individuals under 65 (and those between 65 and 74 who meet a work test) to make deductible personal contributions to superannuation.

Summary of new law

8.8 Schedule 6 to the TLA Bill will allow individuals with a total superannuation balance of less than $500,000 just before the start of the financial year to make additional concessional contributions in that financial year by accessing unused concessional contribution cap amounts carried forward from the previous five years. Unused cap amounts can be carried forward from the 2018-19 financial year.

Comparison of key features of new law and current law

New law Current law
Increased concessional contributions cap
Individuals with a total superannuation balance of less than $500,000 just before the start of a financial year can increase their concessional contributions cap in the financial year by applying previously unapplied unused concessional contributions cap amounts from one or more of the previous five financial years.

An individual can carry forward unused concessional contributions cap amounts accrued from the 2018-19 financial year onwards.

There is an annual cap on the amount of concessional contributions made in respect of an individual for a given financial year. An individual has excess concessional contributions for a financial year if their concessional contributions for the year exceed their concessional contributions cap for the year.

If an individual does not use the entire amount of their concessional contributions cap in a financial year they are not able to carry forward unused amounts.

Detailed explanation of new law

8.9 Schedule 6 to the TLA Bill amends Division 291 to allow individuals who have a total superannuation balance of less than $500,000 just before the start of the financial year to increase their concessional contributions cap in that year if they have unused concessional contributions cap amounts from any of the previous five financial years.

Background

8.10 Division 291 places an annual cap on the amount of superannuation contributions that may receive concessional tax treatment for an individual in a financial year. Concessional superannuation contributions are broadly those that are made to a complying superannuation provider by an employer on behalf of an individual or by the individual themselves, which are included in the assessable income of the superannuation provider in relation to the plan and in respect of which the employer or individual claims an income tax deduction.

8.11 Concessional contributions that exceed the annual cap are excess concessional contributions. An amount equal to the excess is included in an individual's assessable income with a tax offset to compensate for income tax already applied to the contributions in the superannuation fund.

Five year carry forward of unused concessional contributions cap

8.12 Schedule 6 to the TLA Bill introduces provisions to allow a five year carry forward of unused concessional contributions cap amounts. An individual will be able to make additional concessional contributions in a financial year using these carried forward amounts if:

·
their concessional contributions for the year would otherwise exceed the concessional contributions cap for that year; and
·
they had a total superannuation balance of less than $500,000 just before the start of the financial year; and
·
they have previously unapplied unused concessional contributions cap amounts from one or more of the previous five financial years. [Schedule 6, items 1 to 4, subsections 280-15(1) and (2), section 291-1 and subsections 291-20(3))]

Unused concessional contributions cap

8.13 An individual has unused concessional contributions cap for a financial year if they did not fully utilise their concessional contributions cap that year. The amount of the unused concessional contributions cap is the difference between the individual's concessional contributions and the concessional contributions cap. [Schedule 6, item 4, subsections 291-20(6), and schedule 11, item 9, the definition of 'unused concessional contributions cap' in subsection 995-1(1)]

8.14 However, an individual cannot have unused concessional contributions cap for a financial year earlier than the 2018-19 financial year. This means that the first year in which an individual will be able to make additional concessional contributions by applying their unused concessional contributions cap amounts is the 2019-20 financial year. [Schedule 6, item 4, subsection 291-20(7)]

Increased concessional contributions cap

8.15 If an individual makes concessional contributions that exceed the concessional contributions cap (for example they make concessional contributions of $40,000) they are able to increase their concessional contributions cap. To be eligible they must:

·
have a total superannuation balance of less than $500,000 just before the start of the financial year in which they want to make additional concessional contributions; and
·
have unused concessional contributions cap amounts from one or more of the previous five financial years. [Schedule 6, item 4, subsection 291-20(3)]

8.16 Broadly, an individual's total superannuation balance includes the value of their superannuation interests in the accumulation phase, the adjusted balance of their transfer balance account (if they have one), and 'in transit' rolled-over superannuation benefits. 'Total superannuation balance' is explained in further detail at paragraphs 5.15 to 5.38.

8.17 An individual's concessional contributions cap cannot be increased by more than the amount by which they would otherwise exceed the concessional contributions cap. That is, only the exact amount of unused concessional contributions cap that is necessary is used, and any remaining unapplied unused concessional contributions cap is preserved and continues to be carried forward. [Schedule 6, item 4, subsection 291-20(4)]

8.18 Amounts of unused concessional contributions cap are applied to increase an individual's concessional contributions cap in order from the earliest year to the most recent year. [Schedule 6, item 4, subsection 291-20(5)]

8.19 Unused concessional cap amounts not utilised after five financial years will no longer be able to be carried forward.

Example 8.1 : Unused concessional contributions cap In the 2018-19 financial year Layla's employer made concessional superannuation guarantee contributions of $10,000 on her behalf to her superannuation fund. Layla did not make any deductible personal contributions to her fund.The concessional contributions cap for the 2018-19 financial year is $25,000.Layla's unused concessional contributions cap amount for the 2018-19 financial year is therefore $15,000.

Example 8.2 : Increased concessional contributions cap Between the 2018-19 and 2023-24 financial years Layla's concessional contributions and available unused concessional contributions cap are as follows:

2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Concessional contributions $10,000 $10,000 $10,000 $10,000 $10,000 $40,000
Available unused cap $15,000 $15,000 $15,000 $15,000 $15,000 $0
Cumulative available unused cap $15,000 $30,000 $45,000 $60,000 $75,000 $60,000
In the 2023-24 financial year Layla makes a deductible personal contribution of $30,000 in addition to her employer's concessional superannuation guarantee contribution of $10,000 on her behalf. At the end of 30 June 2023 Layla had a total superannuation balance of less than $500,000.Assuming the concessional contributions cap is $25,000 (for all years between 2018-19 and 2023-24), Layla will have exceeded this cap by $15,000. However, Layla will be able to increase her concessional contributions cap for the 2023-24 financial year by using $15,000 of unused concessional contributions cap from the 2018-19 financial year.

Example 8.3 : Increased concessional contributions cap Further to Example 8.2, in the 2024-25 financial year Layla makes a deductible personal contribution of $20,000 in addition to her employer's concessional superannuation guarantee contribution of $10,000 on her behalf. At the end of 30 June 2024 Layla's total superannuation balance was still less than $500,000.

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
Concessional contributions $10,000 $10,000 $10,000 $10,000 $40,000 $30,000
Available unused cap $15,000 $15,000 $15,000 $15,000 0 $0
Cumulative available unused cap $15,000 $30,000 $45,000 $60,000 $60,000 $55,000
Assuming the concessional contributions cap is $25,000, Layla will have exceeded this cap by $5,000. However, Layla will be able to increase her concessional contributions cap for the 2024-25 financial year by using $5,000 of her unused concessional contributions cap from the 2019-20 financial year.The remaining $10,000 unused concessional contributions cap from the 2019-20 financial year cannot continue to be carried forward. This is because in the 2025-26 financial year it would be outside of the five year carry forward period.

Example 8.4 : $500,000 total superannuation balance In the 2021-22 financial year Ashlea intends to use her unused concessional contributions cap amounts to make concessional contributions of $45,000, on top of her employer's concessional superannuation guarantee contribution of $5,000.At the end of 30 June 2021 Ashlea had a total superannuation balance of $480,000 and unused concessional contribution cap amounts from the previous three financial years. She is therefore eligible to make an additional concessional contribution in the 2021-22 financial year.

2018-19 2019-20 2020-21 2021-22
Concessional contributions $5,000 $5,000 $5,000 $50,000
Available unused cap $20,000 $20,000 $20,000 $0
Cumulative available unused cap $20,000 $40,000 $60,000 $35,000
Assuming the concessional contributions cap is $25,000 for the 2021-22 financial year, Ashlea will have exceeded this cap by $25,000. However, Ashlea will be able to increase her concessional contributions cap for the 2021-22 financial year by using the full amount of her unused concessional contributions cap from the 2018-19 financial year, plus $5,000 of unused cap from the 2019-20 financial year.At the end of 30 June 2022 Ashlea now has a total superannuation balance of $530,000. This means that Ashlea will not be able to increase her concessional contributions cap using unused concessional contribution cap amounts in the 2022-23 financial year.However, if Ashlea's total superannuation balance later falls below $500,000 she will again be eligible to increase her concessional contributions cap by accessing her unused concessional contribution cap amounts from the five years prior to the year that she is now eligible to make further contributions.

Application and transitional provisions

8.20 The amendments made by Schedule 6 to the TLA Bill commence on the first day of the next quarter following the day of Royal Assent. [Item 4 in the table in section 2]

8.21 Schedule 6 to the TLA Bill applies in relation to working out the concessional contributions cap for the 2019-20 financial year and later financial years. [Schedule 6, item 5]

STATEMENT OF COMPATABILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016

8.22 Schedule 6 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

8.23 Schedule 6 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 will allow individuals with total superannuation balances of less than $500,000 just before the start of a financial year to make additional concessional contributions in that year by allowing them to access unused concessional contribution cap amounts from the previous five financial years.

8.24 This Schedule improves access to superannuation for those individuals who take time out of work, work part-time, have 'lumpy' income or have not previously had the capacity to contribute up to their concessional contributions cap, by providing them the flexibility to make catch-up concessional contributions, if they have the financial capacity and choose to do so.

Human rights implications

8.25 This Schedule does not engage any of the applicable rights or freedoms because it improves the consistency of the superannuation system for individuals that may otherwise be unable to fully utilise their concessional contributions cap.

Conclusion

8.26 This Schedule is compatible with human rights as it does not raise any human rights issues.


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