Ok, so there has been a lot of talk about the superannuation changes along with a lot of newspaper column inches devoted to the topic, and it can be quite confusing.
Well, here is a brief summary of the major changes that are coming in from 1st July 2017:
Contribution cap changes:
This is best summarised in the following chart:
|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 /|
Up to $540,000 under the
|$100,000 per annum /|
Up to $300,000 under the
|After-tax||65 or over subject to satisfying the work test||$180,000 per annum||$100,000 per annum|
*at any time during this financial year
There is an obvious opportunity to make a larger contribution this financial year, subject to whether it is appropriate.
A special note on after-tax (non concessional) contributions:
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.
There is also a couple of quirks relating to the bring forward contribution limits dependent on your total superannuation balance once you get beyond $1m. These are too difficult to explain without knowing some specific information so please give us a call.
The drama of having ‘too much’ super in a tax exempt environment – $1.6m account balances:
In these changes, the Government has identified $1.6m as the ‘magical number’ to have tax exempt earnings. I am sure there is some actuarial reason behind it – but for the time being let’s accept that it is $1.6m.
So what does this mean?
There is no limit to the amount a person is permitted to accumulate in superannuation. However, the value of transferring into a pension account (which has exempt earnings) in retirement phase is not permitted to exceed $1.6 million (which is subject to indexation). Also, if a person’s total balance(s) in all superannuation funds exceeds $1.6 million, it is not possible to make after tax (non-concessional) contributions to superannuation.
Therefore under the new superannuation rules, which commence from 1 July 2017, if you have $1.6m or more in superannuation (total super assets whether it be Accumulation or Pension), then the following applies:
- You won’t be able to contribute any further after-tax contributions (unless you have qualify for the Small Business CGT exemptions),
- If you have more than $1.6m in pension phase you will need to rectify this, so that your balance in pension does not exceed $1.6m on 1st July, (not including subsequent earnings)
- If you start a new pension from 1st July, you can only have transferred a total of $1.6m into pension phase in all pensions you hold.
- If you transfer $1.6m into pension, even if your balance reduces over time (due to pension payments, fees, poor investment earnings) you won’t be able to top up your pension – ie that’s it!
Even if your super is near or approaching $1.6m, there are still a number of decisions to be made.
Transition to retirement pensions – loss of tax exemption
Currently, investment earnings on these types of pensions are tax exempt. Well, not from 1st July.
Tax treatment on these earnings will now be subject to the normal 15% tax rate that applies to superannuation accumulation funds.
It is essential you review your Transition to Retirement arrangements prior to 1st July as many members in ‘Transition’ were making maximum superannuation contributions. This contribution cap as stated will reduce to $25,000.
A word of warning
Contributions generally need to be actually received by the fund prior to 30 June to be counted in the financial year.
For example, if you processed an EFT or Bpay payment and it shows on your bank statement as being the 30th June (for example) it may not show up as being received by the fund until 1st of July – therefore meaning that the contribution will be subject to the following year’s rules.
It is therefore imperative that you consult your superannuation fund for the proper procedure and cut off times for contributions leading up to 30 June.
Our clients benefit from emergency banking facilities that are in place to ensure deadlines are not missed. When in doubt always double check as additional tax and penalties apply for contributions that breach the relevant caps.
“This document or website contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making an investment decision. Charter Financial Planning Limited and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.”