What are the major changes?
- 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.
- An annual after-tax (non-concessional) 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 (currently $540,000).
- 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.
Important Note: If you already have segregated pension account balances totaling over $1.6 million, it is imperative that you seek financial advice in relation to reducing this balance by 30 June 2017. This is firstly, in order to avoid penalties for exceeding the maximum limit after that date. In addition, your investments supporting that pension need to be reviewed to determine which remain and which are to be moved to your accumulation balance - future capital gains tax advantages may be obtained by doing so.
- Lowering of the income threshold from $300,000 to $250,000 for the purposes of the additional 15% Division 293 tax applied to concessional contributions.
- Allow “catch up” concessional contributions where limits have not been fully utilised and where superannuation balances are less than $500,000. This will commence from 1 July 2018 Super balances.
- No concessional contributions will be allowed where member’s balances exceed $1.6 million.
- The spouse contribution tax offset has been extended to take in spouses earning “income” (as defined) up to around $40,000.
- Any individual eligible to make voluntary super contributions will also be eligible from July 2017 to make personal concessional (tax-deductible) contributions even if they are fully employed (formerly needed to satisfy a 10% maximum employment income test).
- The removal of the tax exemption on pension fund earnings within transition-to-retirement pensions.
There are also possible tax elections that need to considered if your pension balance is greater than the allowed $1.6 million. We do need to determine whether or not you should make these elections as they are not mandatory. This can discussed further with Rosanne when a strategy is being determined.
To deal with these changes you may need to adjust your investment, contribution, pension and estate planning strategies. Additionally, it may be necessary to update your Fund's current trust deed to ensure that you have all of the available options as listed in the above listing of major changes when they come into effect.
How Can We Help?
We understand that your superannuation is a key to your future financial security. So if you’re concerned about how these changes will affect you, don’t hesitate to get in touch with us. We’ll arrange a time to discuss your particular circumstances and needs in more detail, and help minimise any negative effect these superannuation changes will have on your nest egg.
Call us now on 3333 2610 to arrange a meeting to discuss.
The information provided is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions. Cotter Financial Services and its advisers are Authorised Representatives of Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306 Australia Credit Licence No 357306 trading as Fortnum Financial Advisers.