The superannuation rules have changed. These amendments affect both concessional (pre-tax) and non-concessional (after-tax) contribution caps. What’s more, this year your planning needs to consider the ‘existing’ caps to June 30 while planning ahead for the caps that reduce on July 1.
Concessional (pre-tax) contributions include employer Superannuation Guarantee (SG) contributions and salary sacrifice contributions as well as tax-deductible contributions for self-employed persons. It can be a highly tax effective strategy to salary sacrifice your contributions, but recent changes to the rules will make it more difficult in future to move large sums of money into your super, and exceeding the caps can incur penalties.
From 1 July 2017, the current annual concessional contribution caps of $30,000 or $35,000 (if you are over 50) will both be lowered to $25,000. This means that you only have until 30 June 2017 to benefit from the higher caps by contributing up to $30,000 (or $35,000 if you are over 50) in concessional contributions. In the 2017/18 financial year, the new annual cap (which includes your employer’s 9.5% contribution) will apply to everyone.
Non-concessional contributions include any after-tax amounts you pay into your super. Currently, and only until June 30 this year, you may contribute up to $180,000 in non-concessional contributions (if you are under 65). From 1 July 2017, the annual non‑concessional contributions cap will be reduced from $180,000 to $100,000.
However, again if you are under 65 you may utilise the bring-forward rule which will allow you to contribute up to $540,000. After July 1 2017, this three-year bring-forward provision will remain with transitional limits which will vary according to multiple factors.
It is important to note, for individuals aged between 65 and 74 years they too will be eligible to make annual non-concessional contributions of $100,000 but only if they meet the work test. However, they will not be able to access the bring-forward provision.
Transitional arrangements will apply in the event a non-concessional bring-forward contribution has been triggered, but not fully used before 1 July 2017. The remaining bring-forward amount will be reassessed on 1 July 2017 in consideration of the new annual caps.
For individuals with a super balance of more than $1.6 million, they will no longer be eligible to make non‑concessional contributions. The $1.6 million threshold will be based on an individual’s balance as at 30 June of the previous year.
Further, for those individuals with balances close to $1.6 million, they will only be able to bring-forward the annual cap amount for the number of years that would take their balance to $1.6 million. This could impact you if you have larger amounts of money, such as from the sale of an investment property or an inheritance that you wish to contribute to your super fund.
Take action now
I understand that these and other changes to superannuation require careful consideration. By seeking advice you can use the opportunities available to you now to boost your retirement savings, while planning ahead so that you may enjoy the lifestyle of your choosing once you are no longer working.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
A CPA and Director of q4 financial, Grant Titman brings leadership and the disciplined energy of an endurance runner to deliver ‘big picture’ outcomes for his firm and his clients.
Grant’s expertise includes and extends well beyond achieving profitability and growth for his clients’ businesses. His focus is squarely on helping his clients to achieve three key goals: extract wealth from their business; set and achieve long-term wealth objectives; and ultimately, enjoy financial freedom.