Common sense finally prevails! Many people made it known to Coalition party members around the country that the superannuation proposals in the Budget were complete and utter nonsense and needed to be radically changed.

It took a long time for the Treasurer (Mr Morrison) to understand these simple facts, partly because he was being badly advised. The new proposal means that you can put tax-paid money into your super fund until it reaches $1.6 million.

The new provisions do not come into operation until July 1, 2017. That means that, subject to the Senate and current age restrictions, you can invest $180,000 in the current financial year and $540,000 for 3 years. If superannuation is your savings mode, and you can muster the cash, you should take the opportunity.

Best of all … superannuation now returns to being a worthwhile savings vehicle because the income in superannuation funds in pension mode is tax-free from $1.6 million of capital. Income from higher capital amounts in the fund is taxed at 15%.

So, let’s have a look at the changes.

Non-concessional contribution cap

On Budget night, the Government announced they would replace the existing non-concessional contribution (NCC) cap with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.

This measure is replaced with an annual NCC cap of $100,000 (currently $180,000). Individuals under age 65 will also be able to continue using the bring-forward rule. This new NCC cap, which applies from 1 July 2017, will be based on 4 times the lower concessional cap of $25,000.

We have more than $1.6 million in superannuation?

Individuals with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year.

Those with account balances close to $1.6 million would only be able to make use of the bring-forward rule to the extent that the sum of the fund balance, the current year contribution and each brought forward contribution is less than $1.6 million. The threshold amount will be linked to the transfer cap amount relating to amounts being transferred to pension phase.

Individuals who have triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised that amount will have the remaining bring-forward amount re-assessed on 1 July 2017 in line with the new caps.

As existing rules remain until 1 July 2017, you are able to utilise the existing threshold and we recommend you should do this once the legislation in finalised. This is particularly important for persons who have total superannuation savings of close to or exceeding $1.6 million. This is likely to the last year individuals with super savings with at least $1.6 million will be able to make an NCC.

What about re-contributing money into super?

This has become a popular strategy which allows persons who are in receipt of a pension, to re-contribute some or all of their pension back into a tax-free earning environment. Persons over age 65 must meet the Work Test to do this strategy.

With the changes the re-contribution strategy can be reconsidered where appropriate.

Work Test

It was proposed to remove the Work Test for individuals aged 65 to 74. The Government will not proceed with this change. This means the Work Test of 40 hours within 30 days must be satisfied for those age 65 to 74 to be eligible to make contributions to superannuation. Simply, persons over age 65 must meet the Work Test to be able to contribute up to $100,000 (from 01.07.2017) into super.

Unchanged Measures

  • The amount all of us can contribute to super as a concessional contribution from July 2017 will be $25,000. (The next 9 months will be your final opportunity to contribute $30,000 or $35,000 into super depending on your age.)
  • $1.6 million transfer cap for tax free earnings in the pension phase of superannuation and the need to reduce pension balances to this threshold by 1 July 2017. A couple between them can have $3.2 million in a tax free super fund to meet their retirement needs.
  • Tax on earnings for amounts held in a Transition To Retirement pension (TTR). TTR’s will not be as attractive now under these changes. For persons currently in receipt of a TTR it is advisable you seek advice as to whether or not they remain an appropriate strategy.
  • Reduce the income threshold from $300,000 to $250,000 that the additional 15% tax is payable on concessional contributions.
  • Ability for all individuals to claim a tax deduction for superannuation contributions with the removal of the 10% test.
  • Increase of the income thresholds for eligibility for the spouse superannuation contributions tax offset.
  • Introduce the low income superannuation tax offset (similar to the low income superannuation contribution which will be abolished from 1 July 2017.

Opportunity before 30.06.2017

  • 9 months left for you to contribute up to $540,000 into super under the current 3 year bring-forward rule, or $180,000 as a non-concessional contribution.
  • 16/17 year will be final chance to either contribute $30,000 or $35,000 into super (depending on your age).

Summary

These changes are most welcome by everyone. No doubt the changes implemented on Budget night affected the Coalition voting. Now all of us can get on with business and recommending superannuation as the best tax effective vehicle to create wealth for retirement purposes.

Many people have held off contributing or making decisions in relation to their superannuation since Budget night. We encourage our clients and future clients to contact us to discuss any changes that you may feel will benefit you in contributing to superannuation in the future.

More About -- > 

David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

Categories: Financial Planning, General News, Retirement Planning, Superannuation   |  Posted on
Tags: , , , ,

comments

Leave a Comment