The Federal Budget in May 2016 contained a number of proposed superannuation reforms. Many of these have now been legislated and take effect from 1 July 2017.
If you’re currently adding a substantial amount to your super savings or if you have an income stream, there are important changes that may affect you.
The good news is that there’s some support for low income earners and people taking a break from the workforce. This is great for parents, carers and part-time workers.
Club Super is always here to help you navigate these changes and what they might mean for your super and retirement.
Caps to reduce on both concessional contributions and non-concessional contributions
Current Rules: You and your employer can put in up to $30,000 per year if you are under 50 and $35,000 per year if you are over 50.
New Rules: From 1 July 2017, the Government will lower the annual concessional contributions cap to $25,000 for all individuals. The cap will index in line with wages growth.
From 1 July 2018, members with a super balance of less than $500,000 can contribute the unused portion of their $25,000 per year limit for up to five years. This measure is intended to assist people with broken work patterns to attempt to catch up on their superannuation contributions, if possible.
Current Rules: You can contribute up to $180,000 a year without incurring additional tax, or 'bring forward' up to 3 years’ worth of these annual contributions (up to $540,000).
New Rules: From 1 July 2017, the Government will lower the annual non-concessional contributions cap to $100,000 and will introduce a new restriction such that individuals with a balance of $1.6 million or more will no longer be eligible to make these after tax contributions. Individuals under age 65 will still be eligible to bring forward 3 years of non-concessional contributions ($300,000).
What can you do about these changes to the contributions caps?
Check your contributions to make sure you will not exceed the new caps. Remember that contributions to all super funds will be counted.
Consider making additional non-concessional (after-tax) regular contributions if you are going to reach the concessional contributions cap of $25,000. You can also make these contributions from your salary and via your payroll office.
Consider splitting contributions and/or balances with a spouse or partner, BUT be aware of ownership.
Plan ahead. Don’t leave your retirement investment decisions too late especially if these involve selling large assets such as a property or business with the intention of contributing the proceeds to super.
Changes to income streams
Current Rules: Investment earnings (not income payments) in a TTR account are tax free.
New Rules: From 1 July 2017, earnings from assets supporting a TTR income stream are now be taxed at 15% - irrespective of when the TTR income stream commenced.
Current Rules: There is no limit on the amount you can contribute into a retirement income account.
New Rules: From 1 July 2017, a cap of $1.6 million applies to the total amount of super you can transfer into a retirement income account over your lifetime. If you exceeded this cap, you will be required to reduce the amount of money in your retirement income account by 1 July 2017. The income and earnings on your retirement income account (Not TTR) will continue to be tax free. Any amounts above the $1.6 million cap can remain in an accumulation account where investment earnings will continue to be taxed at the concessional rate of 15%.
What can you do about these changes to income streams?
- Seek advice to review the effectiveness of your TTR strategy if you are under age 60. This may result in you transferring your TTR back to superannuation.
- Focus on your retirement goals, since these may still be achievable without using a TTR strategy.
- Consider splitting contributions and/or balances with a spouse or partner, BUT beware of ownership.
- You will be required to transfer any excess amounts above $1.6 million back to superannuation. This may not be a bad strategy, since superannuation remains a tax effective way to save for retirement, and can be used for ongoing wealth accumulation and/or lump sum withdrawals in retirement.
Other significant changes
Current Rules: The Low Income Superannuation Contribution (LISC) is a Government super payment of up to $500 per financial year to help low income earners save for their retirement. The Government had previously announced that the LISC will cease at 30 June 2017.
New Rules: From 1 July 2017, the Low Income Super Tax Offset (LISTO) replaces the LISC. The LISTO effectively refunds the tax paid on concessional contributions by individuals with a taxable income of up to $37,000 – up to a cap of $500.
It is estimated that around 3.1 million low income earners will benefit from the LISTO, including around 1.9 million women*.
Current Rules: The income threshold to receive the maximum $540 tax offset is $10,800.
New Rules: From 1 July 2017 the income threshold increased to $40,000.
It’s estimated that an additional 5,000 Australian families are expected to make use of this opportunity which will mostly benefit women who are more likely to be the lower income earner in families and have lower superannuation balances*.
For a detailed list of the new superannuation reforms:
Club Super is here to help
While these changes may result in a loss of some tax and other benefits, it is important to note that superannuation remains a tax effective and flexible means of accumulating and paying out long term savings for retirement.
Who can I contact?
Club Super has a Client Contact Centre that you can call on 1300 369 330 or email email@example.com and a dedicated team of Client Services Managers who can assist members from the comfort of their workplace.
If you need more detailed advice, Club Super also offers access to personal financial planning through Club Super Financial Planning (Club Super FP) Club Super FP can offer advice across both super and non-super related issues by phone or face-to-face. The first appointment or a discussion with Club Super FP is complimentary and no out-of-pocket fees will be charged unless agreed upon. Fees may be charged for the provision of personal advice, but where the advice relates to your superannuation, these costs may be deducted from your superannuation account. To book an appointment with Club Super FP, please call our Client Contact Centre on 1300 369 330 or send an email to firstname.lastname@example.org.
*Australian Government, The Treasury (23 November 2016) Source: http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Superannuation-Reforms
Club Super Financial Planning advice is provided by My Super Future Pty Ltd (ABN 38 122 977 888) Australian Financial Services Licensee (AFSL no. 411440) and is authorised to provide personal financial advice. The Trustee Club Plus Qld. Pty. Ltd. (ABN 30 010 892 396) is not responsible for, and does not accept liability for the products or services or actions of My Super Future Pty Ltd. You should use your own judgement before taking up any product or service offered by My Super Future Pty Ltd.