New Superannuation Changes
Welcome to another video in our ‘Taking Care of Business’ series. In this video - I’m going to explore the major changes to superannuation, effective from the 1/7/17.
Let me say right up-front, these changes are significant and everyone’s situation is different, so this video is general in nature and you should seek professional advice before taking action. Let’s examine some of the key changes starting with;
The first change is to concessional contributions. These are amounts on which you can claim a tax deduction and your superfund pays contributions tax of 15%. From 1/7/17 you can claim a tax deduction of up to $25,000 p.a. regardless of age. It’s fair to say, that superannuation can be a highly tax effective way to save for your retirement. For example; Let’s say you currently pay tax at 34.5%. Because your superfund only pays contributions tax of 15%, you would get an overall tax saving of 19.5%. Put that another way, if you were to contribute $25k into super you would save tax of $4,875 p.a. When you multiply these tax savings over your working life, this could amount to hundreds of thousands of EXTRA dollars for your retirement.
The second change is that from 1/7/2018 people with a super balance below $500,000 can make 'top up' contributions to their concessional contributions over five years. The limit is $125,000, which means people who have contributed less than $25,000 in one or more of the previous four years can make an additional ‘top-up’ contribution to bring their contributions up to $125k.
This ability to ‘catch up’ will be particularly useful for people that have been out of the workforce and those on higher incomes because they can effectively accelerate their tax deductions in the current tax year, minimise their tax and boost their retirement savings.
The third change is the change to Non-Concessional Super Contributions. These are amounts for which you cannot claim a tax deduction and your superfund pays no contributions tax. The maximum contribution from 1/7/17 for eligible taxpayers is $100,000 p.a. or $300,000 over a 3-year period for those under 65 years of age. It should also be noted that individuals with superannuation balances of more than $1.6 million, would no longer be able to make non-concessional contributions after 1/7/17. They will however, still be entitled to make concessional contributions of up to $25,000 p.a.
The fourth change and one of the biggest changes from 1/7/17, is that to Transition to Retirement Pensions. These were originally introduced to help people move towards retirement by reducing their work hours while using their superannuation to supplement their income. However, they have been increasingly used for tax minimisation purposes, rather than their intended purpose. This is why from 1/7/17 income from assets supporting a (TTR pension) will no longer be tax-free and will instead be taxed in the superfund at 15% on income and 10% on capital gains for assets held for greater than 12 months.
For many, this will significantly reduce the benefits, particularly for high-income earners under the age of 60. Most people currently receiving (TTR pension) may need to review their arrangements and decide whether it is still worthwhile.
In addition From 1/7/17 any amounts above $1.6 million will be taxed at 15% on income and 10% on capital gains for assets held for more than 12 months (previously, these amounts were tax-free).
Because of these changes to TTR pensions, an opportunity could exist for those taxpayers 60 years or over and retired. If they decide to receive an "account based pension" (ABP) their superfund CAN continue to be tax free for up to $1.6 million in "pension account assets" and the income paid to the taxpayer will be also be tax-free.
For those 65 years of age and over, they can also be on an accounts based pension regardless of their working status and revive all the benefits of tax free income in the superfund for up to $1.6million and a tax free pension in their own name.
So, that’s a really brief summary of the major changes to superannuation. If you want to know more about how the changes effect you contact us today.
Until next time …