Tag Archives: Superannuation

Millions but not all to benefit from 2017 super changes

By Robert Wright /August 28,2017/

With changes to super now in effect, numerous Australians will get a leg up, many being low-income earners.

According to the Association of Superannuation Funds of Australia (ASFA), more than four million Australians will benefit from the super changes that came into effect on 1 July 2017. The industry body said while many would be impacted by new rules and restrictions, millions would benefit from the Low Income Superannuation Tax Offset, the ability to claim tax deductions on personal super contributions and obtain rebates on contributions made to their spouse.

Tax offset for low income earners

ASFA Chief Executive Officer Martin Fahy said of the three-million plus people to receive the Low Income Superannuation Tax Offset, an estimated 63% would be female, adding the average super balance of recipients of the Low Income Superannuation Tax Offset was less than $50,000.

Under the initiative, individuals with an income below $37,000 will receive a refund of the tax paid on their before-tax super contributions (up to a maximum of $500) into their super account. The scheme replaces the Low Income Super Contribution, which ceased on 30 June 2017.

Tax deductions on personal contributions

ASFA highlighted that previously most salary and wage earners could only claim a tax deduction under salary sacrifice arrangements, which not all employers offer. Under the new rules however, ASFA said 850,000 additional people would be able to claim a tax deduction for personal contributions made to their super. The incentive is generally available to anyone between the ages of 18 and 75 that is making a personal contribution, with work test requirements necessary for those over age 65.

Tax rebates on spouse contributions

ASFA said increased access to the spouse contributions tax offset would also see an additional 10,000 Australians who contribute money to their spouse’s super (whether they be husband, wife, de facto or same-sex partner), eligible for a maximum tax rebate of $540 if certain requirements were met. Under old rules, the receiving spouse’s income needed to be $13,800 or less for the contributing partner to qualify for a full or partial tax offset, whereas the income threshold is now $40,000.

Not good news for everyone

While the news for over four million Australians was positive, Fahy said around 800,000 individuals, in a given year, would be impacted by other super changes.

Lower caps and added tax

An estimated 80,000 people would be affected by the $100,000 annual cap for after-tax contributions, which was previously $180,000, ASFA said. Meanwhile, the reduction in the before-tax super contributions cap from $30,000 per year (or $35,000 for those over age 50) would impact more than 250,000 people who make contributions in excess of the new cap of $25,000 a year (which applies to everyone, irrespective of age).

A similar number of people would be affected by additional tax on before-tax super contributions. This is because from 1 July 2017, those earning $250,000 or more have to pay an extra 15% tax on any before-tax contributions, on top of the concessional rate of 15%, bringing the tax rate to 30%. Previously, this tax only applied to those earning $300,000 and above.

Limitations on pensions

ASFA estimated around 110,000 people, many in self-managed super funds (SMSFs), would also be affected by the new $1.6 million transfer cap. Effective 1 July 2017, those converting super into a pension are restricted to a limit of $1.6 million in terms of what they can transfer into tax-free pension accounts, not including subsequent earnings.

Any excess needs to be placed back into the super accumulation phase (where earnings are taxed at the concessional rate of 15%), or taken out of super completely. Penalties for exceeding the cap apply.

Removal of TTR tax exemptions

Around 170,000 people in Australian Prudential Regulation Authority-regulated funds accessing a transition to retirement (TTR) pension and a further 100,000 people with such an arrangement in an SMSF would also be affected.

Investment earnings on super fund assets that support a pension are tax free, however, this no longer applies to TTR arrangements. From 1 July 2017, earnings on fund assets supporting a TTR pension are subject to the same maximum 15% tax rate that applies to accumulation funds.

To ensure you understand how the new rules impact you and what the potential benefits may be, please contact us.

Source: AMP

How super contributions caps work

By Robert Wright /March 02,2017/

One of the most tax-effective ways to boost your retirement savings is to put additional money into your super – and once you know how the caps on super contributions work, you can take advantage of the available tax concessions.

This makes sense as, by staying within the super contributions caps, you can reduce the amount of tax you need to pay. These limits or caps generally depend on your age and the type of super contributions you make.

Below we take a look at what you need to know about concessional and non-concessional super contributions:

Concessional (before-tax) super contributions

These are super contributions you make before you pay tax on them. They generally include:

Contributions made by your employer, such as Super Guarantee (SG)
Salary sacrifice payments you choose to make from your before-tax income
Personal concessional super contributions – for example, contributions you make if you’re self-employed.

Concessional super contributions are generally only taxed at 15%, which means you could lower your taxable income.

What is the concessional super contributions cap?

Currently, you can make up to $30,000 in concessional contributions in a financial year if you were less than 49 at 30 June 2016, or $35,000 if you were older.

This will now be changed to an annual cap of $25,000 for everyone from 1 July 2017.

What happens if you go over the concessional super contributions cap?

The amount of your excess concessional super contributions is included in your assessable income and you pay an interest charge.

If you do not choose to withdraw your excess concessional contributions from super, the excess will also count towards your non-concessional superannuation contributions cap.

Non-concessional (after-tax) super contributions

These are superannuation contributions you make from sources that have already been taxed. They generally include:

Super contributions from your take home pay or savings when no tax deduction has been claimed
Certain super contributions made by your spouse on your behalf.

What is the non-concessional super contributions cap?

Currently you can contribute up to $180,000 a year. Or, if you’re under the age of 65 (any time during the year), you are able to apply the ‘bring-forward’ rule. This allows you to make up to three years’ worth of non-concessional contributions (currently $540,000) at any point during a three-year period.

The Government has reduced the annual cap to $100,000 from 1 July 2017.

Under the new rules, if you’re eligible you’ll still be able to apply the bring-forward rule and contribute up to $300,000 at any time during a three-year period.

In addition, from 1 July 2017 the Government will no longer allow you to make any further non-concessional contributions once your total super balance reaches $1.6 million.

What happens if you go over the non-concessional super contributions cap?

You can choose to withdraw the excess non-concessional amount from super and 85% of an ‘associated earnings amount’, or how much your excess contributions earned while in your super account.

The total amount of associated earnings will then be included in your assessable income for the year and taxed at your marginal rate.

Otherwise, excess non-concessional super contributions will be taxed at 49%.

There are eligibility requirements to keep in mind:

If you’re aged between 65 and 74 and want to make voluntary super contributions, you need to pass a work test. This means you need to have worked at least 40 hours within 30 consecutive days in the financial year before you contribute further to your super.
If you’re 75 or over, you won’t be able to make voluntary contributions to super. These eligibility rules don’t apply to your employer’s SG contributions – they can be made at any time, regardless of your age.

For more information about super contributions and how they might impact your financial situation, please contact us.

Source: Colonial First State Investments

What financial records do I need to keep?

By Robert Wright /March 02,2017/

Ever feel like you’re drowning in a sea of paper? Tame the paperwork today and reap the rewards tomorrow.

Life can be complicated enough without all the administrative paperwork that often accompanies it. This is particularly true when it comes to your personal finances.

If stacks of old bank statements, utility bills, receipts, insurance and superannuation documents mean you can’t see the trees for the paper, de-clutter, simplify your finances and improve your quality of life today.

Why simplify?

There are many good reasons to pare back on your financial record-keeping, including:

Living in smaller dwellings means we have less space to store documents
Saves time by making it easier to find what you need
Helps your loved ones find relevant documents easily should something happen to you
In the event of a home emergency, you can quickly find important documents you may want to take
Makes your life easier at tax time.

What you need to keep

When it comes to identifying the documents you need to keep, considering your legal obligations is a good place to start.

The first of these is your annual tax return. In order to complete your tax return you’ll need documentary evidence of:

all payments you’ve received, such as wages, interest, dividends and rental income
any expenses related to income received, such as work-related expenses or rental repairs
the sale or purchase of assets, such as property or shares
donations, contributions or gifts to charities
private health insurance cover
medical expenses, both your own and those of any dependents

You need to keep these documents for five years after you lodge your tax return in case you’re asked to substantiate your claims, and it’s also a good idea to keep your notice of tax assessments for five years. However, if you run a small business, the document requirements and timeframes differ – find out more at the Australian Tax Office (ATO).

The second category of documents are those related to property such as:

property deeds
home loan documents
renovation approvals
warranties relating to work undertaken

What do the Superannuation changes mean for you?

By Robert Wright /February 10,2017/

With changes due to become superannuation law, see what you should be aware of and what it could mean for your future goals.

The government’s May 2016 Federal Budget proposals and several subsequent modifications to its plans around super reform passed through both houses of parliament at the end of November. With new regulations set to become part of Australian superannuation law, some of the rules around super contributions and the tax breaks available will change from 1 July 2017.

What’s changing

Personal deductible contribution changes

All individuals under the age of 75 will be eligible to make personal contributions for which they can claim a tax deduction up to the CC cap. Currently, individuals need to meet the 10% test (maximum earnings as an employee condition) to be eligible.

This will enable people in a range of situations to make personal deduction contributions and potentially target the CC cap where that is currently not possible. This could include people who:

are employed and receive SG contributions that are within the CC cap, but their employer doesn’t offer salary sacrifice arrangements
switch from being a self-employed contractor to an employee during the course of a year and fail the 10% test due to employment income

Catch-up Concessional Contributions (Effective 1 July 2018)

Individuals with super balances less than $500,000 will be able to access a higher annual cap and contribute their remaining unused CC cap on a rolling basis for a period of five years. Only unused amounts accrued from 1 July 2018 can be carried forward.

This will enable clients who take time out of work or work part-time to make catch-up contributions when they accumulate lumpy income or decide to go full-time. Also, if you were to sell a large asset (property etc) it may allow you to make a large contribution to super.The after-tax super contributions cap will be reduced

Initially, the government planned to introduce a $500,000 lifetime cap on after-tax (non-concessional) super contributions, which it will no longer be implementing. Instead, an annual after-tax contributions cap of $100,000 will be put in place, replacing the current cap of $180,000. Those under age 65 will still have the ability to bring forward three years’ worth of after-tax super contributions, with a maximum of $300,000 under the bring-forward rules.

The before-tax super contributions cap will also be lowered

The before-tax (concessional) contributions cap will decrease from $30,000 (or $35,000 if you’re turning 50 years of age or older this financial year) to $25,000 per year for everyone, irrespective of age.

A pension transfer cap of $1.6m will be introduced

If you’re converting your super into a pension to derive an income in retirement you’ll be restricted to a limit of $1.6 million in your tax-free pension account, not including subsequent earnings. If you already have a balance above that, the excess will need to be placed back into the super accumulation phase, where earnings will be taxed at the concessional rate of 15%, or taken out of super completely.

Transition to retirement pensions will lose their tax exemption

Investment earnings on super fund assets that support a pension are currently tax free. However, this will no longer apply to transition to retirement (TTR) income streams.

Earnings on fund assets supporting a TTR income stream will be subject to the same maximum 15% tax rate that applies to accumulation funds.

Super opportunities this financial year

You can contribute $80,000 more in after-tax super contributions than what will be possible from 1 July 2017, as the after-tax contributions cap will be reduced from $180,000 to $100,000 per year.

If you’re under age 65, you can also bring forward three years’ worth of after-tax super contributions up to a maximum of $540,000. This is significantly higher than the $300,000 limit that will apply from 1 July 2017.

The before-tax contributions limit will remain at $30,000 (or $35,000 if you’re turning 50 years of age or older this financial year) until 1 July 2017. This means you can contribute $5,000 or $10,000 more in before-tax contributions respectively before the limit is reduced to $25,000 per year for everyone.

Source: AMP and MLC