Super Changes where to from here?
What is the transfer balance cap?
The amount that can be transferred from your accumulation super account to a retirement income account is capped at $1.6 million. It’s a lot of money, and you may not have that much in your super account, but what you might not realise is how much you have across a number of superannuation funds.
We’ve been talking about consolidating super for such a long time, and being efficient with the fees you are paying across multiple accounts. But the other benefit of consolidation is that it may be much easier to keep track of your superannuation balances
You have until 31 December 2017 to rectify a transfer balance cap breach if your retirement income stream balances were between $1.6 million and $1.7 million on 30 June 2017.
Can I still make a big one-off contribution into my super?
2016/2017 financial year was the last chance you had to make a one-off contribution of up to $540,000 into your super fund. If you haven’t already taken advantage of the three-year bring forward rule (which rolls up three years of non-concessional contributions into one), and were 64 or under on 1 July 2016, you could of made a non-concessional (after-tax) contribution of up to $540,000 into your super account.
As of July 1 2017, the non-concessional contribution cap reduced to $100,000 from $180,000. Not everyone can afford to contribute up to $540,000 in one year, but anything you had contributed above $180,000 in 2015-16 or 2016-17 would have triggered the transitional bring-forward rules.
From July 1 2017, the bring-forward rule will be based on the new lower cap of $100,000 per year. It means, when eligible, you could still contribute up to $300,000 in one financial year. The bring-forward opportunity is only available to you if you were 64 or younger on 1 July 2017 and your total superannuation balance is less than $1.4 million on 30 June 2017. For those who turn 65 in a financial year, you would need to meet the superannuation based work test, if contributing when you have already turned 65.
You won’t be able to make any non-concessional contributions if your total superannuation balance is $1.6 million or more on 30 June 2017.
What should I do about the reduction in the concessional contributions cap?
From July 1, the cap on concessional contributions will be reduced to $25,000 from $30,000 for people under 50, and to $25,000 from $35,000 for those 50 years and older. These contributions are taxed at the concessional tax rate of 15%. If you earn more than $250,000, an additional 15% tax may apply on your concessional contributions.
Many people focus on paying down the mortgage, and expect to worry about super closer to their retirement. But from 1 July, the lower caps mean people won’t be able to accelerate contributions to the same extent as they approach retirement.
It will always be important to consider paying down non-deductible debt but in light of the reduced contribution caps it may also be worth considering putting a little more of your salary or savings into super each year if you can afford it.
I’m self-employed. Will it now be easier to make tax-deductible contributions to super?
The good news is that the answer to this is yes. Previously, you needed to show that less than 10 per cent of your income came from employment to be able to make a personal contribution to super and claim a tax deduction. But that requirement will be removed from 1 July.
This is a fantastic one because it is really responding to the change in work patterns. It provides two opportunities. One is to the self-employed who have a mixture of self-employment and employee income, but it is also good for those people who are employed but whose employers don’t allow them to salary sacrifice or who prefer making personal deductible contributions rather than salary sacrifice.
If you decide to take advantage of this measure, make sure you remember to notify your super fund of your intention to claim these contributions as a tax deduction.
Since there is such a lot of detail and so many changes, it’s important to seek financial advice tailored to your situation and needs. Contact your financial planner today.