Navigating your way through the super rules
Keeping up with the many changes to the superannuation rules since May’s Federal Budget announcements has become the equivalent of a full-time job! So much for ‘simpler super’. Last week, the changes passed both Houses of Parliament. To assist you to navigate the changes, we have compiled a snapshot below:
The below will be implemented from 1 July 2017:
Concessional Super Contributions
- You will be able to claim a tax deduction for personal super contributions – without organising through salary sacrifice or meeting other tests (with the exception of the work test for over 65s). This will allow you to place the contribution from your take home pay or savings and claim the deduction in your tax return (as long as you complete the standard notice of intent to claim a tax deduction form etc).
- The annual cap on concessional contributions (i.e. tax-deductible contributions being the superannuation guarantee paid by employers; personal deductible contributions and salary sacrifice) will be $25,000 per year. This is a reduction in the annual cap which was previously $30,000, or $35,000 if you were over 50.
- Note these caps still apply for the current 2017 financial year and present an opportunity for clients to maximise their contribution before they reduce to the lower $25,000 level.
- For high income earning clients with over $250,000 in adjusted taxable income (previously $300,000) your concessional super contributions will be taxed at 30% (instead of 15%).
- From 1 July 2018, if your overall super account balance is less than $500,000, you will be able to “bank” your unused concessional contributions for use in future years (up to 5 years). This will give you the ability to make larger deductible contributions if your circumstances change in a later year.
Non-Concessional Super Contributions
- From 1 July 2017, the non-concessional (i.e. after tax) contributions cap will significantly reduce to $100,000 per year (from the $180,000 cap currently in place).
- This reduced $100,000 cap was introduced when the highly contentious $500,000 lifetime limit on contributions was scrapped.
- However, there is an opportunity in this current financial year for those eligible to take full advantage of the higher cap by applying the bring forward rule allowing you to contribute up to $540,000 before 30 June 2017 ($180k x 3 years).
- Post 1 July 2017 clients with over $1.6M in super will NOT be able to place any further non-concessional contributions into super. Therefore, as a planning strategy this could be the last opportunity to get a large lump sum into the system before the new rules kick in.
Other Key Changes
- From 1 July 2017 super fund members will be limited to a $1.6M cap to support tax free pensions. Earnings on amounts held by members in excess of $1.6M will be taxed back in accumulation phase at 15%. Although this is a major change, the overall tax rate is still low compared to the outside of super tax environment.
- From 1 July 2017, the tax exempt status of earnings on funds supporting a transition to retirement pension ‘TRIP’ will be removed. This will affect many of our clients. A planning strategy is to consider realising taxable capital gains in this 2017 financial year to maximise the benefits of the current system before the new rules apply.
- The low-income superannuation contribution, renamed the Low Income Superannuation Tax Offset (LISTO) will continue to reduce the tax paid at the super fund level by up to $500 for individuals with income of less than $37,000.
- The removal of the work test for over 65s will not go ahead. If you are over 65 you will still need to work at least 40 hours in a 30-day period in order to be eligible to make a superannuation contribution.
- From 1 January 2017 there are harsher aged pension asset tests. Rather than losing $ for every $1,000 over the full age pension threshold retirees will lose $3.00.
As you can see the super rules as they currently stand are very complex. However, there are also some excellent planning opportunities prior to 30 June 2017 that are worth considering. The key takeout is to seek advice to ensure you stay within the rules.