On September 27th 2016, the Government released more draft legislation implementing some of the superannuation changes announced in its 2016 Federal Budget.
Many of these will apply from 1st July 2017, so you could start thinking about how these changes will impact your superannuation and whether you might need to change any of your current arrangements.
This latest legislation includes amendments about:
- Implementing the Government’s $1.6 million transfer balance cap, which limits the amount a person can hold in the tax-free retirement phase after 1st July 2017.
- Lowering the concessional contributions cap by $10,000 for those over 50 ($5,000 if <50) to $25,000 per year for all taxpayers from 1st July 2017.
- Reducing the income threshold at which a person must pay an extra 15% concessional contributions tax, from $300,000 per year to $250,000.
- Providing more flexibility for those with broken work patterns by allowing those with balances less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years.
- Removing the tax-free treatment of assets that support a transition to retirement income stream, so Transitional pension will now be taxed as if they’re in accumulation mode.
Some of these changes may require you to adjust your investment, contribution, pension and estate planning strategies going forward.
This will most likely be so if: you have a superannuation balance near $1.6 million or more; plan to make significant super contributions in the next few years; you’re a high income earner; or now have a transition to retirement pension.
What do these changes encourage?
It will soon be harder to add money into your super fund, so resist any urge to withdraw money already there.
If you can manage it, withdraw only the minimum obligatory pension to retain as much as possible in the tax-free pension phase.
If you do have over $1.6m in a personal super pension, then rather than withdraw it, you could move any excess above $1.6m back into an accumulation account where that fund income will be taxed at 15% (offset by franking credits) and capital growth if held over one year will be taxed at 10%.
Consider adding any large amounts you’d like to have in super before 1st July 2017 where up to $35,000 can be contributed concessionally. A further amount up to $540, 000 can be contributed non-concessionally using the current 3 year bring forward rules, if you qualify.
Though they’ve been delayed, utilise the concessional contribution ‘catch up’ provisions from 2019/20 if you have less than $500,000 in super as they will enable you to catch-up on up to 5 years of contributions (5 x $25k = $125k) – this is particularly helpful for mums returning to work.
If you’re largely self-employed but have significant employee income (like some medical specialists), you should soon be able can claim a tax deduction for personal superannuation contributions. If your employed income is more than 10% of your total income the current restriction on personal super contribution deductions will no longer apply from 1st July 2017.
Reconsider your need for a transitional super pension, as they’ll soon be taxed as if in accumulation mode for those over 60 (no longer tax-free).
Some other comments about Super:
If you earn $50,000 p.a., you automatically get $5,790 per year through your (unseen) 9.5% employer super guarantee.
If you save just $20 per week more into super – that’s a total of $4,750 in super every year.
If you keep doing that every year for 45 years compounded at 5% p.a., you’d accumulate about $1 million in your super when you retire. This negligible effort to build up your super could replace your $50,000 p.a. salary when you retire.
This example shows that sustained saving of a small regular amount makes getting to the $1.6 MILLION pension limit is still attainable.
People don’t plan to fail – they often just fail to plan.
How can we help?
If you think the Government’s superannuation changes will affect you, give us a call to arrange a time to meet so we can discuss your particular situation in more detail and plan for success.
If you would like to discuss the information in this article or your investment options with one of our wealth management professionals, get in touch today!
Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.