A rush on super contributions is tipped after wealthy savers were granted a last chance to stash up to $540,000 from after-tax earnings before the end of the financial year.
Financial advisers have welcomed the news that a slated $500,000 lifetime cap on non-concessional (after-tax) super contributions will be dumped.
The plan, which was introduced effective immediately and backdated to 2007, was the most controversial component of a sweeping package of changes to the super tax rules outlined in the federal budget.
Treasurer Scott Morrison revealed a revised plan on Thursday that leaves the pre-budget rules in place till June 30, 2017.
This financial year, wealthy savers can now take advantage of the outgoing $180,000 annual cap on after-tax contributions.
An existing provision for three years worth of contributions to be rolled forward means those with unused caps have a last chance to stash up to up to $540,000 from after tax income into super before June 30.
"I think we can definitely expect to see a rush on contributions now as everyone in a position to get the maximum allowed under the old rules into super does so," Hamilton Wealth Management founding partner Ian Gillies said.
Downsizers who were caught out on budget night halfway through the process of selling a property, or other large asset, with plans to use the windfall to top up their super will be among those to get the most immediate relief from the government's compromise on its super changes, designed to garner enough support to pass the reform package through Parliament.
A big reprieve
"A couple of my clients were genuinely caught out on budget night, having just sold an investment property but not completed the transaction or transferred the money into their super," Dixon Advisory head of advice Nerida Cole said.
"Those people have been really stressed and this latest change comes as a big reprieve for them."
Other groups tipped to benefit from the government's backdown on the $500,000 cap are professional women returning to the workforce after a career break, and younger workers keen to bolster their retirement savings.
"The new arrangements will be much better for the many women who take time out from their career to raise children but then find themselves willing and able to save more in super once they return to work," Multiforte Financial Services director and adviser Kate McCallum said.
The latest changes will also provide greater flexibility for people who want to put some of the proceeds from an inheritance or divorce settlement into their super, she said.
Ms Cole said couples, where one partner has a lot more in super than the other, should look at evening up their balances before June 30.
A key criticism of the $500,000 lifetime cap on non-concessional contributions levelled by Labor and some Liberal Party backbenchers was that it was retrospective..
In a compromise that was approved by the party room on Thursday, the unpopular cap was dumped and replaced by a mechanism to allow people to make concessional and non-concessional contributions till they hit the new retirement balance cap of $1.6 million.
New look changes
Non-concessional contributions will now be capped at $100,000 per year, until people's total account balance hits $1.6 million. People aged under 65 will still be allowed to bring forward three years worth of non-concessional contributions.
Workers with more than $1.6 million in super, although restricted from making any further after-tax contributions, will still be allowed to keep making pre-tax contributions up to the relevant annual cap. However the amount they can transfer out of the accumulation to pension phase, where earnings are tax free, remains set at $1.6 million.
Another criticism of the now dumped $500,000 lifetime cap on non-concessional super contributions had been that it would have made it virtually impossible for younger workers, with the exception of the very highest income earners, to ever reach the $1.6 million pension balance cap.
Most people with $1.6 million in super are older savers who boosted their balances in the brief window when former Treasurer Peter Costello allowed up to $1 million in after-tax earnings to be stashed into super per year.
"With the latest amendments the super changes are much better than what was announced in the budget," HLB Mann Judd director superannuation Andrew Yee said.
"It will be more feasible for people still in the workforce to strive to reach the $1.6 million balance cap and should help confidence in the system."
Mandatory employer payments into super and voluntary top-ups made via salary sacrifice are called concessional contributions because they are taxed at a flat rate of 15 per cent, representing a discount for most workers. Non-concessional contributions are those made from earnings that have already been taxed at the applicable marginal income tax rate.
