Well, we’re now faced with the most significant changes to super we’ve seen since 2006. We’ve summarised the key changes below. It’s vital you understand them, and if impacted, determine what action you need to take over the next 6 months prior to 1 July 2017.
There is a once in a lifetime opportunity to top up your super before the contribution limits are reduced!
From 1 July 2017:
- Concessional contributions (before tax contributions) will be limited to $25,000 per annum for all ages; and
- Non-concessional contributions (after tax contributions) will be limited to $100,000 per annum.
This will also mean the 3 year bring forward rule for non-concessional contributions will reduce from $540,000 to $300,000. From 1 July 2017, if your total super balance is higher than $1.6 million, you will no longer be allowed to make any non-concessional contributions – so the next six months could be your last chance to substantially top up your super and take advantage of the low tax/tax free status.
To soften the blow re lower contribution limits, allowance has been made for catch-up contributions, for any unused concessional contributions over a 5 year rolling period. Your total superannuation balance will need to be less than $500,000 to utilise this concession, which will come into effect from 1 July 2018.
We strongly urge anybody wanting to make contributions to their fund seek advice sooner rather than later, and maximise this window of opportunity.
Do you have more than $1.6 million in your pension?
From 1 July 2017 a $1.6M cap will apply across all superannuation interests, restricting the amount of super you can have in tax-exempt retirement/pension phase. Amounts in pension phase above the $1.6M cap will need to be converted to accumulation phase (and earnings will be taxed thereafter at 15%) or withdrawn from the super fund by 1 July 2017.
The Government has provided transitional provisions for capital gains tax relief for super members impacted by this, and we strongly urge anybody in this position to seek advice as to how to maximise the transitional provisions and restructure your affairs prior to 1 July.
Do you have a transition to retirement pension (TRIS)?
If you do, the tax free environment you currently enjoy in your super fund income will cease.
From 1 July 2017, the earnings on assets supporting a TRIS will now be taxed at 15% instead of 0%. Further, Individuals will no longer be allowed to treat payments from a TRIS as lump sums for tax purposes.
Please note, a TRIS will not count towards the $1.6M pension transfer balance cap as it will not be a tax exempt environment.
If you have a TRIS, you need to seek advice and take action between now and 30 June.
Is your taxable income greater than $250,000?
From 1 July 2017 onwards the ‘Division 293’ income threshold will be $250,000.
Previously this tax was levied on superannuation contributions for individuals with income greater than $300,000. If you have income above the $250,000 threshold, be aware that an additional tax of 15% will be levied on your taxable concessional contributions, which will now be taxed at 30% from 1 July 2017.
So where to from here?
Please note – you are not required to take action at this point. In the New Year we will be in contact with you and/or your Adviser to discuss how the changes impact on you and provide strategic advice where appropriate.
Despite the complexity and adverse nature of some of these changes, the low tax environment of 15% for accumulation mode and the tax free environment pension mode provides means superannuation is still likely to be the most effective vehicle to help you save for and fund your retirement. Rest assured, as specialists in SMSF we will assist you with the transition to the new super environment.
The information provided is general in nature and is not personal financial product advice. The information provided has been prepared without taking into account your objectives, financial situation or needs and because of this you should, before acting on it, consider the appropriateness of it having regard to your objectives, financial situation and needs. You should carefully read and consider any product disclosure statement that is relevant to any financial product that has been discussed before making any decision about whether to acquire the financial product.