As you contemplate this year’s plan for your super, be aware of the significant changes which were legislated in 2016. It was certainly a year of reform for superannuation and individuals wishing to maximise their retirement benefit may have to adjust their financial plan now to incorporate the new regulations. Here are some of the major changes which will come into effect on 1 July, 2017:
• $25,000 annual concessional contributions cap for everyone. That’s all folks! All before tax contributions, including compulsory employer and salary sacrifice contributions, are now limited to this figure. This will adversely affect the many over age 50 members who had been salary sacrificing to a higher cap ($35,000) in an effort to top up their super.
• $1.6M limit on the transfer balance to a super pension. If you’re lucky enough to have more than this in your pension, you will have to either withdraw the excess or move it back to the accumulation phase where earnings will be taxed. For amounts in the pension phase and under the cap, earnings will remain tax free.
• Removal of tax exemption for transition to retirement pensions. Eligible workers who have transferred their super savings to a transition to retirement pension will no longer enjoy the tax free earnings the pension produces as the tax exemption will be removed from 1 July 2017.
• Cut to annual non concessional or after tax contributions to $100,000 per annum. The current annual cap has been reduced and if you have over $1.6M in super (as at 30 June the previous year) you will not be able to make after tax contributions to super at all. The ‘bring-forward’ rule will continue and allow an eligible individual to contribute up to $300,000 over three consecutive years (bringing forward three years contributions) for those under 65.
• Low income tax offset. Individuals with a taxable income of less than $37,000 per year will be able to obtain a refund of contribution tax paid up to a limit of $500.
• Catch up concessional contributions over five year period (starting from 1 July 2018). Unused portions of the concessional cap ($25,000 per annum) can be brought forward for individuals who have a total balance of less than $500,000. The intent is to allow workers to catch up if they have not contributed up to the annual cap.
• Thirty percent tax on super contributions for individuals earning more than $250,000 per year. The income threshold has been lowered from $300,000 per year and it means that anyone with an adjusted taxable income above the new threshold will have to pay 30% contributions tax rather than 15%.
• Individuals up to age 75 able to claim tax deductions for personal contributions. This change removes the 10% income test rule and allows self employed, part time workers and anyone earning income from outside paid employment a chance to top up their super up to the $25,000 annual cap and claim a tax deduction.
• Spouse superannuation tax offset increased to $37,000 phasing out at $40,000. A contributing spouse will be able to receive the full 18% offset if their spouse’s income is less than $37,000 and they make a contribution of up to $3000 to their spouse’s super account.
• As these changes are significant, you may wish to consider obtaining financial planning advice. NGS Super Financial Planning can be contacted on 9273 7900.