Superannuation reform & how it will effect you
You may be aware that the government has recently made significant changes to the superannuation laws. It is important to consider how these changes may impact you and whether you should take any action before the commencement date of 1 July 2017.
Key reforms include:
- Concessional contributions reduced to $25,000 per annum – Currently the limit is $30,000 per annum or $35,000 per annum if age 50 or over.
- You will be required to reduce your tax-free pension balance to $1.6 million – The remainder may still remain in superannuation as an Accumulation Account and the earnings on that portion will be subject to income tax of 15% (generally 10% for capital gains).
- Non-concessional contributions reduced to $100,000 per annum – (from the current $180,000). If you are under 65, you have until 30 June 2017 to use the current caps and contribute up to $540,000 this financial year (reducing to $300,000 from 1 July 2017). You can do this using the ‘bring forward’ rule that allows you to bring forward up to three years’ worth of non-concessional contributions in one year (and then make no or limited contributions for the next two years).
- Earnings on fund income no longer tax-free – From 1 July 2017, the income received from assets supporting transition to retirement income streams will no longer be exempt from tax but included in the fund’s assessable income. Income will be taxed at 15% and capital gains generally taxed at 10%.
- More high income earners to pay higher tax on concessional contributions – Currently, high income earners with incomes of $300,000 or more pay 30% tax on super contributions they make, rather than the usual 15%. From 1 July 2017, this threshold will reduce to $250,000.
- Non-concessional contributions limited to $1.6 million – Once your super balance has reached $1.6 million, from 1 July 2017 you will no longer be able to make non concessional contributions to super. Concessional contributions will still be allowed.
- Locking-in unrealised capital gains – As the rule changes may result in future taxable capital gains that were previously tax-free, there is an opportunity to re-set the cost base of assets on 1 July 2017 to ensure that accumulated gains up to that date will remain tax-free.
There are also some positives in the reforms:
- Claiming a tax deduction on concessional super contributions – If you are under the age of 75, from 1 July 2017, you will be able to claim a tax deduction for personal superannuation contributions. Currently, you need to earn less than 10% of your income from salary; or are self employed. This allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. Note that if you are over 65 you will need to meet the “work test” to make contributions to super.
- ‘Carry forward’ unused super cap – Where your superannuation balance is less than $500,000, from 1 July 2018 you will be able to make additional (carry forward) concessional contributions if you have not fully utilised your concessional contributions cap in the previous 5 years. With the delayed start date of this reform, the first year that the carry forward amount can be used is 2019-20.
How can we help?
If you are concerned that the changes to superannuation will affect you, please contact us to arrange a time to go over your particular needs in detail.