As you may be aware, super contribution rules and limits are set to change from 1 July 2017.
While you may not be able to put as much money into super because of these changes, the good news is there are still opportunities you could take advantage of before the financial year ends.
The changes and opportunities explained...
Summary of the super cap changes:
Contribution Age Current Cap Cap from 1 July 2017
Before-tax Under 50 $30,000 per annum $25,000 per annum
Before-tax 50 or over* $35,000 per annum $25,000 per annum
After-tax Under age 65* $180,000 per annum / $100,000 per annum /
Up to $540,000 under the Up to $300,000 under the
bring-forward rules bring-forward rules
After-tax 65 or over $180,000 per annum $100,000 per annum
* At any time during this financial year
Note, if you’re 65 or over at the time of making a contribution, a work test must first be satisfied.
Before-tax (concessional) super contribution opportunities:
There’s an opportunity to contribute an additional $5,000 (or $10,000 if you’re turning 50 or over) in before-tax super contributions than what will be possible once the cap is reduced on 1 July 2017.
After-tax (non-concessional) super contribution opportunities:
There’s an opportunity to contribute $80,000 more in after-tax super contributions than what will be possible when the cap is reduced on 1 July 2017.
If you’re under age 65, you could also bring forward three years’ worth of after-tax contributions up to a maximum of $540,000, which is higher than the $300,000 limit that will apply on 1 July 2017.
Another thing to note is that from 1 July 2017, individuals with a total super balance of $1.6 million, or above, will not be able to make any further after-tax contributions. This means the current financial year may be the last opportunity where you can make an after-tax contribution.
Other things to be aware of...
More people may benefit from making spouse contributions:
Currently, an individual making a contribution into their spouse’s super account may be entitled to a maximum tax offset of $540 if certain requirements are met.
From 1 July 2017, the government will increase access to this spouse super tax offset by raising the lower income threshold for the receiving spouse from $10,800 to $37,000.
The amount of super you can move into a pension will be limited:
From 1 July 2017, if you’re converting your super into a pension to derive an income in retirement you’ll be restricted to transferring a maximum of $1.6 million into a tax-free pension account, not including subsequent earnings.
If you already have a pension balance above that, the excess must be placed back into the super accumulation phase (where earnings will be taxed at the concessional rate of 15%), or taken out of super completely before 1 July 2017 to avoid potential penalties.
Also note, if you do transfer $1.6 million into your pension, even if your balance reduces over time, you won’t be able to top up your pension a second time.
Transition to retirement pensions will lose their tax exemption:
Investment earnings on super fund assets that support a pension are currently tax free. However, this will no longer apply to transition to retirement (TTR) income streams.
Earnings on fund assets supporting a TTR income stream will be subject to the same maximum 15% tax rate that applies to super accumulation funds from 1 July 2017.
Why superannuation matters...
The government has projected that in 40 years the number of people aged over 100 will be 300 times what it was in the mid-1970s (1).
With that in mind, many Australians will need to fund a longer retirement and more super savings could make a difference to the lifestyle you lead in the years after you finish working.
Things to keep in mind...
- Contributions must be received by 30 June 2017 to take advantage of existing cap rules but check with your super fund to confirm their processing cut-off date.
- If you contribute money that exceeds the super cap limits, additional tax and penalties may apply.
- The value of your investment in super can go up and down. Before making contributions, make sure you understand any risks associated with your chosen investment option.
- The government sets general rules about when you can access your super, which will typically be between the ages of 55 and 60 depending on when you were born.
We’re here to help...
For more details about the changes and how you can take advantage of opportunities, please Contact Us to speak with one of our Advisors.