On 1 July 2017, for many of you, there may have been substantial changes regarding your superannuation and retirement income…it’s not too late to review your current position and make any adjustments.
Your future lifestyle depends on you being well informed, and making the most of any financial opportunities available to you and minimising any negative impacts.
The Australian Government introduced the Superannuation (Objective) Bill 2016 on 9 November 2016. The new Bill commenced on 1 July 2017. These changes – and there are a quiet a few of them – will affect the way your retirement income is taxed. If you are still employed -full time, part time or self-employed – the changes will affect the contributions you make to your superannuation as of 1 July 2017.
The way the superannuation system is changing is multi-faceted and far reaching. We’re intentionally keeping this blog simple.
We’re doing this for two reasons. Firstly, superannuation is all about your finances and we are not qualified to provide you with financial advice. The purpose of this blog is to motivate you to take action….even now. What we will do in the following paragraphs is highlight who may be affected, and detail some of the key changes that will have already happened.
Secondly, we’re purposely just skimming across the surface to help you initiate more comprehensive conversations with your financial adviser in the next few weeks. We strongly recommend that you make an appointment to discuss your situation with a qualified, experienced superannuation professional, as early as possible…..it’s not to late.
The new superannuation changes on 1 July 2017…who will be most affected?
You may be affected by the recent super changes, if you:
- are retired or about to retire
- make additional super contributions throughout the year, to your, or your spouse’s super
- have an income around or over $250,000 per year
- or your spouse has an income less than $40,000
- have not been employed full-time recently.
Are you retired or about to retire?
If you’re retired or about to retire, there are a few changes you needed to make, ideally before 1 July 2017. These changes mostly impact higher wealth individuals – a small percentage of the Australian population.
- Introduction of a $1.6 million transfer balance cap: the maximum amount you can have invested in the retirement phase where earnings are tax free will be $1.6 million. Find out more here: retirement transfer balance cap
- Additional savings above $1.6 million can remain in an accumulation account: those earning are then taxed at 15 percent. Alternatively, any savings above $1.6 million can remain outside of your super.
- If you have a retirement phase balance of less than $1.7 million on 30 June 2017: you’ll have until 31 December 2017 to bring your balance to under $1.6 million.
- If you’ve retired and your retirement phase balance exceeds $1.6 million, you’ll need to either:
o Move any excess back to the accumulation phase and be taxed at up to 15%; OR
o Withdraw the amount as a lump sum by 1 July 2017, OR wear a tax penalty.
- Removal of tax exemption for Transition to Retirement Pensions: if you’re currently invested in a tax free Transition-to-Retirement (TTR) pension, from 1 July 2017 the earnings from this pension will be taxed at up to 15% pa. Simply say ‘farewell’ to that tax exemption.
Do you make additional super contributions throughout the year?
If you either top up your own super contributions or your spouse’s, here is what changed on 1 July 2017:
- Reduction to the annual concessional (pre-tax) contributions cap: to $25,000. It was $30,000 for those aged under 50; and $35,000 for those aged over 50. Check with your financial adviser but you may be wise to take advantage and top up before 30 June 2017.
- If you’re self-employed and aged under 75: you’ll be able to claim an income tax deduction for super concessional contributions. Check with your financial adviser as you’ll need to lodge an intention to claim with your superannuation provider.
Check with your financial adviser but it may be time to make the most of the current cap and top up your super contributions before 1 July 2017.
Do you earn more than $250,000 per annum?
At a high level, this is what we understand to be changing for high income earners:
- Before and after tax contribution limits are reducing: you’ll be paying 30% tax on your concessional superannuation contributions if you’re earning more than $250,000 per annum. Currently this income threshold is set at $300,000, and attracts 15% tax. Find out more here: reform of concessional contributions.
- Cut in annual non-concessional (after-tax) contributions cap from $180,000 to $100,000. This particularly affects people that may come into a one-off windfall. Check with your financial adviser but you may want to take advantage of this before 1 July 2017.
- If you have a balance of more than $1.6 million or more you may not be eligible to make non-concessional contributions. Find out more here: lifetime cap.
Do you earn less than $40,000 or are you self-employed?
At a high level, here is what we understand to be changing:
- Spouse super contributions: from July 1 your spouse can earn up to $40,000 (currently $13,800) for you to be entitled to a partial super tax offset. It means you can claim a tax offset of $540 (capped) or up to 18% of the contributions you make to your spouse.
- You can ‘catch up’ on super contributions: if you’re income hasn’t been stable and you’ve contributed less than your before tax (concessional) cap, you can rollover the unused portion of your concessional contribution cap for up to 5 years. This lets you make additional contributions in future years to ‘catch up’.
For more information:
We strongly recommend that your next step is to speak with your financial adviser or accountant.
If you’d like to be armed with more insights to assist with that conversation, then you can research further information here: