{"id":5041,"date":"2014-05-20T11:52:20","date_gmt":"2014-05-20T01:52:20","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=5041"},"modified":"2014-05-20T12:22:49","modified_gmt":"2014-05-20T02:22:49","slug":"excess-non-concessional-contributions-abolished-trap-exists","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/succession-planning\/excess-non-concessional-contributions-abolished-trap-exists\/","title":{"rendered":"Excess non-concessional contributions to be abolished … but a trap exists!"},"content":{"rendered":"
\"Excess-non-concessional-contributions-to-be-abolished\"<\/div>\n

The recent Federal Budget announcement that excess non-concessional contributions will be abolished is great news.<\/p>\n

However, there is a trap that means advisers still can\u2019t afford to let their guard down when it comes to contributions and careful monitoring is still required.<\/p>\n

The announcement<\/h3>\n

The Federal Budget contained the following announcement, which was \u2018music to the ears\u2019 to presumably all SMSF advisers:<\/p>\n

\nThe Government will allow individuals the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to be taxed at the individual\u2019s marginal tax rate. Final details of the policy will be settled following consultation with key stakeholders in the superannuation industry.<\/p>\n

This measure delivers on the Government\u2019s election commitment to develop an appropriate process that addresses all inadvertent breaches of the contribution caps where the error would result in a disproportionate penalty.<\/p>\n

This measure is estimated to have a cost to revenue of $40.1 million over the forward estimates period.<\/p><\/div>\n

Naturally, this is not law yet but only an announcement.<\/p>\n

However, assuming it will be passed, there is the distinct possibility that a trap will exist.<\/p>\n

The trap<\/h3>\n

The trap is best illustrated by way of case study.<\/p>\n

What a client might intend to do … the trap is set!<\/em><\/p>\n

Consider Larry. Larry wishes to make the maximum non-concessional contributions allowable.<\/p>\n

Larry is under 65. Accordingly he contributes $150,000 in the 2014 financial year and uses the bring forward provisions in the 2015 financial year.<\/p>\n

Because the concessional contributions cap is increasing from $25,000 to $30,000 in the 2015 financial year, the non-concessional contributions cap is increasing as well (ie, from $150,000 to $180,000). Therefore, under the three year bring forward provisions, in the 2015 financial year he contributes $540,000 (ie, 3 x $180,000).<\/p>\n

Accordingly, what he intends to do can be summarised as follows:<\/p>\n\n\n\n\n\n\n\n
Financial year<\/strong><\/td>\n2014<\/td>\n2015<\/td>\n<\/tr>\n
Amount contributed<\/strong><\/td>\n$150,000<\/td>\n$540,000<\/td>\n<\/tr>\n
Three year bring forward provisions triggered?<\/strong><\/td>\nNo<\/td>\nYes<\/td>\n<\/tr>\n
Non-concessional contribution cap<\/strong><\/td>\n$150,000<\/td>\n$540,000<\/td>\n<\/tr>\n
Amount of cap to be carried forward to next year<\/strong><\/td>\nN\/A<\/td>\n–<\/td>\n<\/tr>\n
Excess<\/strong><\/td>\n–<\/td>\n–<\/td>\n<\/tr>\n<\/table>\n

What actually occurs … the trap is sprung!<\/em><\/p>\n

However, Larry has a very small amount of non-concessional contributions in the 2014 financial year that he forgot about. Such contributions can arise in many ways. For example, perhaps:<\/p>\n