Countdown to new Superannuation rules commencing 1 July 2017
Whenever superannuation comes up in conversation, often the questions relate to how a fund is performing and if they have chosen the right investment options. And that is really the extent of the conversation for a lot of people! That is only one factor and just the tip of the iceberg for what you should be thinking about when it comes to superannuation.
It is important that from the start a clear distinction is made between financial advice in relation to your superannuation and the tax implications from changes made in the recent Federal Budget, which is the focus of this article. A financial planner is the best person to talk to when it comes to investment options, different funds and insurance requirements.
So taking a step back for a moment, lets consider why there is so much focus on Superannuation in the media and by financial professionals. The Australian Taxation Office defines superannuation as “A system where money is placed in a fund to provide for a person's retirement". And this is absolutely true, but it is very much human nature to want that money now, rather than at some point in the future.
Therefore, the rules and regulations attempt to walk a fine line between providing enough incentive for people to actually want to contribute to their own superannuation, but not be so lenient that the system is taken advantage of.
The reality of it is though, in Australia the top margin tax rate including medicare levy and the budget repair levy is currently 49%. Whereas contributions to superannuation funds are generally taxed at 15%, which is a 34% difference in the tax you pay. Those kind of tax savings are substantial and add up over time.
So, hypothetically if you are thinking about putting some extra money into your superannuation, there are two options: concessional and non-concessional contributions. Broadly speaking, a concessional contribution is one that is either salary sacrificed, or claimed as a tax deduction. It is a pre-tax contribution.
A non-concessional contribution is a contribution that you make to superannuation without claiming a tax deduction (i.e. after-tax contributions).
So from 1 July 2017, the rules will be as follows:
Reduction of concessional contributions cap to $25,000 p.a.
Removal of 10% rule for personal concessional contributions
Reduction of division 293 income threshold to $250,000
Introduction of the low income superannuation tax offset (LISTO)
Allowing catch up concessional contributions over five years
Lowering the non-concessional contributions cap to $100,000 p.a.
The $1.6 million eligibility threshold
Bring forward rules
Increasing the income threshold for the low income spouse tax offset to $37,000
This is a high level overview of the new rules coming into effect in only a few days time. If you haven't already considered what this means for you, then now is the time to take action as the clock is ticking on the end of the financial year!
As mentioned above, this is just the tip of the iceberg and there is a lot of information out there so if this has sparked your interest, then it is best to reach out to your financial adviser, or contact us for more information.