New changes make superannuation less super than it once was.
Big superannuation changes kick in on 1 July this year and they are likely to impact many Australians. Here is what you need to know.
For many years, Australian superannuation has been viewed as a simple and effective vehicle for both reducing tax and holding investments tax free into retirement. Not surprisingly, the Australian government recently woke up to the fact that the super system was so effective at this, it was significantly eroding Australia’s tax base. The political consensus at the time was that the system also tended to favour higher income earners.
To tackle this issue, Federal Treasurer, Scott Morrison, announced widespread changes to superannuation in the 2016 budget. These changes come into effect on 1 July 2017. For many of us, these changes will significantly impact how we use superannuation to fund retirement. It’s important for all Australians to understand the key changes and if necessary, seek advice before the impending deadline.
Here are some of the most significant changes.
- A reduction in the concessional contributions cap will reduce the amount you can contribute to superannuation via salary sacrifice contributions or tax deductible contributions for small business owners
- Introduction of a $1.6million cap on the total superannuation balance that can be used to fund tax-free retirement income streams
- A reduction in non-concessional contributions (lump sum contributions) that can be made to boost superannuation balances
- Changes to the taxation of transition-to-retirement income streams
- Changes to tax deductions for personal superannuation contributions
Beat the deadline.
With 1 July just around the corner, you still have a small window to boost your concessional and non-concessional contributions under the current rules. If it suits your financial situation, contributing a higher than normal portion of your salary into your super before 30 June 2017, may allow you to bring your total tax free contribution up to a maximum of $35,000 for those over 49 and $30,000 for those 49 or younger.
With the maximum amount for non-concessional contributions reducing from $540,000 to $300,000 under the bring forward rule, you may still be in a position to top up your super with a large one-off contribution before 30 June. After that, the annual maximum non-concessional contribution falls to just $100,000 in any one year. Speak to your adviser to find out whether either of the above strategies can work for you.
Coping with the cap the new pension limits.
New caps are being introduced which restrict the amount of superannuation that can be used to fund a superannuation pension. The change is retrospective and also affects pensions already in force as at 30 June 2017. For 2017-18, the limit is $1.6m. If you have more than $1.6m in super, or are likely to in the future, the new changes will impact you. Any balance over the pension cap can be retained in a superannuation accumulation account.
If you are likely to be affected because you already have a pension account with a balance of more than $1.6m, or are likely to exceed that limit, we encourage you to seek advice on your options now.
Luckily, there a still options available to help you manage the pension cap. In some circumstances, splitting or transferring part of your super to a spouse may be beneficial as it may allow both partners to access the $1.6m pension cap. We can help you work through the maze and implement the strategies that are most appropriate for your personal circumstances.
Dealing with the new rules.
Who needs to take action?
You are | What has changed | What you need to do |
Employed and contributing more than $25,000 in salary sacrifice and superannuation guarantee contributions via your employer | Contribution limits will be reduced from $35,000 for those over 49 and $30,000 for those under age 49 to a universal limit of $25,000 | Ensure that you reduce contributions after 1 July 2017 to comply with the new contributions cap. |
Self-employed and claiming a tax deduction for personal contributions in excess of $25,000 per annum | Ensure that you reduce contributions after 1 July 2017 to comply with the new contributions cap. | |
Employed or self-employed, contributing modest amounts to superannuation and have the capacity to contribute more | Contribution limits will be reduced from $35,000 for those over 49 and $30,000 for those under age 49 to a universal limit of $25,000 | Consider increasing contributions before 30 June to take advantage of the higher contribution limits. |
Retired, drawing a pension from superannuation and your balance exceeds $1.6 million | A lifetime cap of $1.6million will be applied to amounts that can be transferred into or held in pension accounts | You should seek advice urgently. This rule will be applied to existing pension accounts and new accounts from 1 July 2017 |
Approaching retirement and had planned to take advantage of lump sum contribution rules (non-concessional contributions) to substantially increase your superannuation balance | Lump sum contribution limits will be reduced from $180,000 per year to $100,000 | You should seek advice urgently. Using the bring-forward rule, you may be able to contribute up to $540,000 but this needs to be done before 30 June 2017. |
Currently have a transition-to-retirement (TTR) pension | Tax will be levied on the fund that pays the pension marginally reducing the tax effectiveness of TTR strategies | Review appropriateness of TTR strategy particularly if you are working full time. |
For more information email enquiry@xseedwealth.com.au or give us a call on 1800 882 473 to speak with one of our superannuation experts.
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Disclaimer and General Advice Warning
xseedwealth pty ltd. (ABN 56 126 371 346) is a corporate authorised representative 466622 of Alliance Wealth Pty Ltd (AFSL 449221 I ABN 93 161 647 007) and Professional Investment Services Pty Ltd (AFSL 234951 | ABN 11 074 608 558)
The information provided in this communication has been prepared as general advice only and has been issued by Centrepoint Alliance Ltd and Alliance Wealth Pty Ltd (AFSL 449221) and Professional Investment Services Pty Ltd (AFSL 234951). It is based on our understanding of current regulatory requirements and laws as at the date of publication. As these laws are subject to change you should talk to a professional financial adviser for the most up to date information.
We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice and seek the assistance of a financial adviser before acting on any advice contained in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Centrepoint Alliance Ltd nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.