Super changes ahead
Be quick and give your super a big boost!
On 1 July 2017, big changes are coming to super.
What should you do?
You won’t be able to contribute as much before-tax money to super.
You won’t be able to contribute as much after-tax money to super.
You will only be able to transfer a maximum of $1.6 million to pensions.
Earnings on your transition to retirement account will be taxed.
Contribute extra before-tax money and take advantage of the tax benefits
Currently, people over 50 can contribute $35,000 per year. Or, if you’re under 50 the limit is $30,000.
After 1 July, the maximum amount of before-tax money you can place into super is only $25,000 per year, regardless of your age.
Take the opportunity. Contribute an extra $5,000 - $10,000 this year because you won’t be able to next financial year. Be quick!
Remember, before tax money – also known as concessional contributions - includes:
- your employer’s 9.5 per cent Super Guarantee contribution, plus
- the voluntary salary sacrifice amounts you make.
Importantly, they are taxed at only 15 per cent. Much lower than most people’s income tax rate.
Carry forward unused contributions
From 1 July 2018 new rules let people with super balances under $500,000 ‘carry forward’ up to five years of the unused portion of their concessional contributions cap.
Mary makes a payment of $10,000 in concessional contributions in the 2018/19 financial year, and $15,000 in concessional contributions in the 2019/20 financial year.
In the 2020/21 financial year, Mary will be able to ‘carry forward’ her unused cap of $25,000 from the previous two financial years, plus the $25,000 limit for the year, for a total contribution of $50,000.
Contribute after-tax money and pay only 15 per cent on earnings
Currently, you can contribute $180,000 each year.
After 1 July, you can only contribute $100,000.
So, if you have savings or expect to receive a large payment, such as a bonus, you may want to place it into super before 1 July 2017 – rather than waiting.
The contribution cap ‘bring forward’ rule is also changing for contributions made with after-tax income.
The ‘bring forward’ rule lets you contribute up to three times the non-concessional contribution cap in a financial year (for those under age 65), by bringing forward your allowed contribution from the next two financial years.
Currently you can bring forward $540,000 over three years but after 1 July 2017 this will be reduced to $300,000. And, with the new $1.6 million super balance cap, the number of years you can bring forward your contribution will be limited by your super balance.
Check how close your balance is to $1.6 million if you are a pensioner or plan to retire soon
Currently, there is no limit to the amount you can transfer to a pension and receive tax-free earnings
After 1 July 2017, there will be a limit of $1.6 million that can be transferred to a pension account to receive the tax-free earnings.
So if you have a super or pension balance of around $1.6 million or more be sure to seek advice from your financial adviser before 30 June 2017.
Review your transition to retirement strategy
Currently, earnings on the investments behind a transition to retirement pension are tax free.
After 1 July 2017, earnings on a transition to retirement pension will be taxed at up to 15 per cent.
If you currently have or are considering a transition to retirement strategy you may need to re-consider this as an effective tax strategy. Speak to your financial adviser.
To take advantage of the opportunities available before 1 July 2017 or for advice on your particular circumstances contact your financial adviser.