Big changes are coming to super
21 Feb 2017
By Shadforth Financial Group
With a raft of super changes coming into effect 1 July 2017, now is the time to start thinking about how these changes might affect your retirement plans.
The changes are wide-ranging and mostly relate to the super contributions cap. That is, how much you’re allowed to put into super, either as a before or after-tax contribution. There is however a window of opportunity before 1 July 2017 to take advantage of existing legislation.
Changes to concessional (before-tax) contributions
Concessional contributions are contributions you can make to super with your before-tax salary. For most people concessional contributions are taxed at just 15 per cent – not your marginal tax rate.
What are the new caps for concessional contributions?
The Government has reduced the cap on concessional contributions as shown in the following table:
|Age||Current annual cap*||Annual cap after 1 July 2017*|
50 or over
* includes your employer’s 9.5 per cent compulsory contribution
What’s your opportunity?
Prior to 1 July 2017, consider maximising your concessional contributions up to $35,000 (depending on your age) before they are cut to just $25,000.
Carrying forward unused contributions
From 1 July 2018, new rules will let people with super balances under $500,000 ‘carry forward’ up to five years of the unused portion of their concessional contributions cap.
For example, if you make a payment of $10,000 in concessional contributions in the 2018/19 financial year, and $15,000 in concessional contributions in the 2019/20 financial year, then in the 2020/21 financial year you will be able to ‘carry forward’ the unused cap of $25,000 from the previous two financial years, plus the $25,000 limit for that year. This means a total contribution of $50,000 in that year instead of just $25,000.
Currently concessional contributions are taxed at 15 per cent for people who earn less than $300,000 increasing to 30 per cent for those who earn more. From 1 July 2017, the 30 per cent tax rate commences on incomes of $250,000 or more.
What’s your opportunity?
If you do earn between $250,000 and $300,000 you may want to consider maximising your concessional contributions before 1 July to avoid paying extra tax on those contributions.
Changes to non-concessional (after-tax) contributions
The Government has reduced the cap on non-concessional contributions from 1 July 2017 as shown in the following table:
|Current||After 1 July 2016|
$540,000 over three years for those under 65
up to $300,000 over three years for those under 65
The ‘bring forward’ rule is also changing
In addition to the lower annual caps, people with a super balance of more than $1.6 million will not be able to make non-concessional contributions from 1 July 2017.
The ‘bring forward’ rule is a taxation rule that lets you contribute up to three times the NCC cap in a financial year (for those under age 65 at any time in the year) by bringing forward your allowed contribution from the next two financial years.
With the new $1.6 million super balance cap, the number of years you can bring forward your contribution may be limited by your super balance as shown in the following table:
|Balance is between||Maximum NCC cap available|
$0 - $1.4 million
$300,000 (up to three years annual cap)
$1.4m - $1.5m
$200,000 (up to two years annual cap)
$1.5m - $1.6m
$100,000 (no bring forwards available)
If you trigger, or have triggered, the bring-forward rule in 2015/16 and 2016/17 and have not fully used your NCC bring-forward limit before 1 July 2017, your available limit will be lowered as follows:
- If you triggered the bring-forward cap in 2015/16, your cap will be reduced from $540,000 to $460,000 ($180,000 for 2015/16 +$180,000 for 2016/17+ $100,000 for 2017/18)
- If you trigger the bring-forward cap in 2016/17, your cap will be reduced to $380,000 ($180,000 + $100,000 + $100,000).
What’s your opportunity?
There is a one-off opportunity to contribute to your superannuation this financial year under the current NCC cap of $180,000 or $540,000 (using the current bring forward rules). If you are under 65 and haven’t already triggered the ‘bring forward’ rules you can contribute up to $540,000 this financial year without breaching the NCC cap - $240,000 more than is permitted after 1 July 2017
What else is changing?
Removing the earnings exemption for assets backing Transition to Retirement pensions
If you’re close to retirement, there may be the ability to access your super in a limited fashion through a transition to retirement pension.
Currently, income and capital growth on the investments behind a transition to retirement pension receive the same tax treatment as a full retirement account based pension, meaning these earnings are tax free. From 1 July 2017, investment earnings on assets invested in a transition to retirement pension will be taxed at up to 15 per cent – in line with existing tax rates on accumulation funds.
Removal of the anti-detriment payment
When someone passes away, their super benefit must be paid to a dependant (such as a spouse or child) or their estate. When this payment is a lump sum, some dependants are able to apply for an additional payment which effectively refunds a significant portion of tax paid on contributions. This ‘anti-detriment payment’ is being removed for people who pass away after 1 July 2017, and for any death benefits paid after 1 July 2019.
The super changes are complex and everybody’s circumstances are different, so it’s worthwhile speaking to a professional financial adviser. Talk to us today to find out how you can make the most of your window of opportunity.