From 1 July 2017 some rule changes will come into effect that may impact your retirement strategy and possibly the contributions you make into superannuation.
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.
Consider Spouse Contributions
Spouse contributions are super contributions made on behalf of your spouse. Generally, you can claim a tax offset of up to $540/year if your spouse is a low income earner or is not working. From 1 July 2017, the spouse's income threshold will be increased to $40,000 to assist more couples to support each other in saving for retirement.
The before-tax super contributions cap will 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 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.
Review your plans and Stay on track - Super Opportunities This Financial Year
1. 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.
2. 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.
3. 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.
It is important to review your current contribution strategy to assess the impact of these changes and any amendments that may be required. If you would like us to review your current Superannuation strategy, please contact our office on 07 55362288.