Wednesday, 30 November 2016
The Federal Government’s super changes will affect:
- how much you contribute to super;
- your ability to claim a tax deduction for personal contributions
- how much super you can transfer to a pension account; and
- the earnings on a TTR pension account.
New contribution limits
From 1 July 2017, the cap on before-tax contributions (also known as concessional contributions) will be reduced to $25,000 per year. This cap will apply to everyone, regardless of age. The current concessional contribution cap is $30,000 for members aged up to 49 years and is $35,000 if you’re older.
In addition, if your super balance is less than $500,000 and your total contributions (including SG and salary sacrifice) are less than $25,000 , you will be able to make ‘catch-up’ contributions over 5 years, starting from 1 July 2018.
If you earn less than $37,000 a year, you may be eligible for a Low Income Super Contribution (LISC) from the government of up to $500 in a financial year. The LISC will become the Low Income Tax Offset (LITO), and will work in the same way as it does now.
Non-concessional contributions or after-tax contribution limits will be reduced from $180,000 a year to $100,000. This will only be available for members with super account balances under $1.6 million. There will also be a bring forward provision of 2 or 3 years up to $300,000. Currently, members can contribute up to $540,000 every 3 years up to age 65.
For spouse contributions, the upper income threshold will increase from $13,800 to $40,000. This means you can pay into your spouse’s super account and claim a tax offset of up to $540, providing their income is less than $40,000 per year.
Tax deductible personal contributions to super
Under the current superannuation arrangements, employees are generally unable to claim a tax deduction for personal contributions. Only members considered to be working on a self-employed basis are eligible to claim a tax deduction.
From 1 July 2017, the self-employed 10% income test will no longer apply and anyone will be able to claim a tax deduction for personal super contributions, subject to the annual contribution caps.
Changes to Pensions
From 1 July 2017, the maximum amount you can transfer from your superannuation into a pension account is $1.6 million without having to pay tax. Any amounts above the cap will be taxed, including any earnings on the excess amount.
Currently, no tax is paid on investment returns of pensions. From 1 July 2017, earnings on assets supporting Transition to Retirement Pensions will be taxed at 15%, like super.
You may need advice
While the rules may seem complex, super is still a tax-effective way of saving for your retirement. If you need more information or help understanding what these changes mean, call us on 1800 680 627. Should you need personal financial advice, we can refer you to Club Plus Financial Planning* for a free initial consultation.
*Club Plus Financial Planning Pty Ltd (Club Plus Financial Planning), ABN 14 143 636 766 is a Corporate Authorised Representative #367058 of Adviser Network Pty Ltd, ABN 25 056 310 699 (“Licensee”). The Licensee holds a current Australian Financial Services Licence #232729 and is responsible for the financial services provided to you. All Club Plus Financial Planning’s financial advisers are sub authorised representatives of the Licensee.
The information contained in this article is general information only and does not take into account your individual investment objectives, financial circumstances or needs. You should not rely on this information as a substitute for professional advice.