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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