For most Australians, superannuation remains one of the best wealth accumulation structures from a tax perspective. Changes made to superannuation legislation that will impact how people can maximise their wealth and take advantage of the tax concessions available will be effective from 1st July 2017. Major changes are explained below…
Concessional contributions cap;
As the concessional contributions cap will reduce to $25,000 for 2017-2018. The current cap for the 2017 financial year is $30,000 if aged < 49 years old and $35,000 for 49 years and older. Therefore, it will be worthwhile to make the most of these changes and maximise your contributions prior to 1st July 2017. Anyone with a salary sacrifice arrangement in place must have it reviewed to ensure they don’t exceed the contributions cap for 2017/18. Exceeding the cap will result in the excess contributions being taxed at their marginal tax rate and an excess contributions charge.
Non-concessional contributions cap;
There will be a $100,000 annual cap on non-concessional contributions. Currently, non-concessional contributions are capped at a maximum of $180,000 per person, per financial year. Anyone aged 64 (or younger) on 1st July 2016 may bring forward up to three years’ contributions, thereby contributing up to $540,000 for the three years. This will reduce to $300,00.
Further, only individuals with less than $1.6m in super will be allowed to make non-concessional contributions. This will be based on their superannuation balances from all funds, as at the previous 30 June.
Given the above changes, it may be worth maximising non-concessional contributions this financial year. It should be noted that non-concessional contributions are not subject to any tax when contributed to a superannuation fund and form part of an individual’s tax-free component of their superannuation. Increasing the tax-free component may be beneficial where an individual seeks to access their benefit before turning 60 years of age.
New Pension Transfer Balance;
The amount someone can have invested in pension phase will be limited to $1.6m. The intention of this change is to limit the tax exemption available on investment earnings. Any amounts in excess of the transfer balance cap will need to transferred back to an accumulation account or, where a condition of release has been met, may be withdrawn from the superannuation system entirely.
It is also important to remember that taxation of super benefits paid to an individual – as either a lump sum or pension – have not changed.
If you would like to discuss any of these changes or strategies to take advantage of your situation prior to 1st July 2017 please contact the office to make an appointment.