Superannuation opportunities to action before 30 June 2017
The 30th June is fast approaching, and this year is particularly important, as substantial superannuation changes take effect from 1 July 2017.
Depending on your circumstances the following summarises a number of opportunities you should consider prior to 30 June.
1. Concessional Contributions
These are before tax contributions, which include the superannuation guarantee, salary sacrificing and any contribution which is tax deductible.
Currently, the maximum contribution for someone under age 50 is $30,000 and if you are aged 50 or over it is $35,000 (this will reduce to $25,000 regardless of your age after the end of this financial year).
2. Non-Concessional Contributions
Non-concessional contributions include amounts an individual or their spouse contribute to superannuation from after-tax monies.
The main benefit of transferring after-tax monies into your superannuation fund is to reduce the rate of tax you pay on their earnings. The tax on the earnings in a superannuation fund is 15% therefore, the superannuation fund will retain 85% of these earnings after tax. So if you are a high income earner and you are in, say, the top tax bracket, you may be taxed on your earnings at 47%.
Please note that you can only redeem your principal from your superannuation fund when you satisfy certain conditions of release.
There is an opportunity to contribute up to $540,000 this financial year.
Before 30 June 2017, individuals under age 65 can contribute up to $180,000 in after-tax contributions to their superannuation, or make three years contribution, one for the current year and two years in advance, totalling $540,000. If you are aged 65 or over, you need to pass the work test of having worked 40 hours or more in 30 consecutive days of the financial year to make non-concessional contributions.
From 1 July 2017, a non-concessional limit of $100,000 each financial year will apply, which means the maximum bring-forward amount will ultimately be reduced to $300,000 for individuals under age 65. In addition from 1 July 2017, individuals whose total superannuation balance is $1.6 million or more will not be able to make non-concessional contributions.
3. Complying with the introduction of a transfer balance cap
From 1 July 2017, the amount of superannuation monies an individual may have in pension phase is broadly limited to a starting balance of $1,600,000 which is known as the transfer balance cap.
As the transfer balance cap applies to both new and existing pensions, if an individual currently has more than $1,600,000 in the pension phase of superannuation, they will need to take action prior to 1 July 2017, otherwise penalties may apply.
If impacted, an individual may be able to address the change by moving the balance of their pension in excess of $1,600,000 back to the accumulation phase. Another option is to cash the excess amount from the superannuation environment and invest this amount in their personal name, or a family trust.
4. Changes to transition to retirement account based pensions
Currently, if an individual is between preservation age and 65, they may move their superannuation to pension phase even if they are still working. These pensions are known as transition to retirement (TTR) pensions. Whilst an individual is still working, the amount withdrawn from the pension is between 4% and 10% per financial year.
This will remain the case post 1 July 2017, however the tax rate applied to the investment earnings of assets supporting a TTR account based pension will increase from 0% to 15% on most incomes.
Should you have any queries in relation to superannuation strategies please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.