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Superannuation: How it will shape up from 1 July 2017

Superannuation  |  25/11/2016  |   3 min read

The superannuation changes announced in the 2016 Federal Budget are now in place, albeit with some notable tweaks on what was originally proposed. 

Treasurer Scott Morrison and his deputy, Kelly O’Dwyer, are heralding the changes as producing a fairer superannuation system, in which contributions caps are less generous, the amount you can hold in a tax-free pension account capped at $1.6 million and the annual income threshold at which you’ll pay 30% contributions tax instead of the standard 15% reduced to $250,000.

But more important for you, is what actions you should or can take to ensure you’re still making the most of your super from 1 July:

 

  Current rules New rules (from 1 July 2017)
Employer contributions

You can contribute up to $30,000 annually, or $35,000 for those aged 50 or more, in pre-tax income to your super. Contributions tax of 30% applies if your annual income is over $300,000.

You can contribute up to $25,000 annually in pre-tax income to your super. Contributions tax of 30% applies if your annual income is over $250,000.


 

Actions:
This means older members have less ability to top up their super as they approach retirement. There are two things you can consider:

  • Ask your employer to increase your salary sacrifice contributions to take advantage of the current caps until 30 June 2017.
  • Ensure your employer contributions, including salary sacrifice, will not exceed $25,000 from 1 July 2017.

 

  Current rules New rules (from 1 July 2017)
After-tax contributions

$180,000 non-concessional contributions annual cap, although you can still bring-forward two years (total contribution of up to $540,000) providing you make no further after-tax contributions for the following two financial years. 

$100,000 non-concessional annual cap, with a bring-forward of $300,000.
The original Budget proposal to for a lifetime cap (since 2007) on non-concessional contributions was scrapped.


 

Actions:
If you’re in a position to make a substantial contribution, then you can consider:

  • Taking advantage of the current cap and ensuring your contribution is received into your super account by 30 June 2017.
  • Ensuring contributions after 1 July 2017 do not exceed the new cap.

 

  Current rules New rules (from 1 July 2017)
Low income super
contributions

Low Income Super Contribution (LISC) refunds up to $500 of any 15% concessional tax deductions for the financial year back into your super account if your adjusted annual income is less than $37,000.  Individuals who earn less than 10% of their income from employment or business, and those whose LISC entitlement would $20 or less are ineligible. 

The scheme is retained under the new name Low Income Superannuation Tax Offset (LISTO).


 

Actions:
No action required. The Australian Taxation Office assesses your eligibility for a low income super contribution based on your income tax return and payment. If you qualify, payment is automatic.

 

  Current rules New rules (from 1 July 2017)
Spouse contributions

Spouse income limit of $13,800 a year applies to your eligibility for an income tax offset on contributions into their super account.

Spouse income limit will $40,000 a year for tax offset.


 

Actions:
If you are planning to make spouse contributions before 30 June 2017: 

  • Note that the more generous income limit does not come into effect until the 2017-18 financial year. 
  • Reconsider whether the increased spouse income limit will make you eligible for a tax offset after 1 July 2017.

 

  Current rules New rules (from 1 July 2017)
Super pensions

No limit on the amount transferrable into a superannuation pension.

A limit of $1.6 million can be transferred into a superannuation pension account.
Note that, after establishing your pension, you will not have to adjust your pension account balance if investment earnings push it beyond $1.6 million.
  Investment earnings and income payments for your pension account are untaxed if you’re aged 60 or over. Unchanged.


 

Actions:

If you already have a pension account with a balance exceeding $1.6 million, you will need to consider your options for reducing it to the new cap. Best suggestion – talk to one of our financial planners about your options!

 

  Current rules New rules (from 1 July 2017)

Transition to
retirement

Investment earnings untaxed.

Investment earnings taxed at 15%.
  Tax -free payments and withdrawals if you're aged 60 or over. Unchanged.


 

Actions:

The changes to taxation should prompt you to seek advice from one of our financial planners on the best financial strategy for your transition to retirement years.

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