The 2016 Federal Budget changes are now law. Six important changes take affect from 1 July 2017. Will they affect you and what are your options?
Now we have clarity on the long-awaited superannuation changes, it is a good time to review your superannuation strategy. Wealthy superannuation savers in particular may wish to contribute more to superannuation now to get full benefit from the old rules. Here are six key changes taking affect from 1 July 2017 and some tips for you to consider.
1. Reduction in Concessional Contribution Caps
The Concessional Contribution (CC) cap will reduce to $25,000 pa (from $30,000-$35,000) for all individuals regardless of their age. Note that this cap includes your current Super Guarantee contributions of 9.5%.
TIP: Clients with sufficient cashflow should use the opportunity to maximise their Concessional Contributions before the 1 July 2017.
2. Changes to Non-Concessional Contribution Caps
The Non-Concessional Contribution (NCC) cap will reduce to $100,000 per annum from the current level of $180,000 for those with total superannuation balances under $1.6 million. Eligible individuals will be able to bring forward up to three years of contributions totalling $300,000.
TIP: If your superannuation balance is above $1.6 million, consider maximising your NCC before 30 June 2017. As the carry forward rules still apply, you are still able to contribute up to $540,000 before 1 July 2017 should you wish.
3. Changes to Personal Deductible Contributions
Individuals who are aged under 75 and previously did not meet the 10% rule will now be eligible to make tax deductible personal contributions. The 10% rule (ie 10% of income is earnt as an employee) will no longer apply as of 1 July 2017. This will enable people in a range of situations to make personal deductible contributions where it is has not been possible before.
TIP: If your employer did not offer salary sacrifice arrangements or you’re working overseas for a foreign employer and weren’t previously able to salary sacrifice, consider taking advantage of the change to make contributions yourself directly from 1 July 2017.
4. Changes to Transition to Retirement Income Stream (TRIS)
Earnings and capital gains from investments held in a Transition to Retirement Income Stream will no longer be exempt and will be taxed at 15% and 10% respectively. These changes will apply to existing and new accounts irrespective of the commencement date for the TRIS.
Clients will also no longer be allowed to treat certain super income stream payments as a lump sum for tax purposes. This is because they will also pay tax on income payments, thereby negating the tax benefits for certain income earners under 60.
5. Introduction of the Transfer Balance Cap
The total amount of super monies that can be transferred into a pension account will be capped at $1.6 million. The cap will be indexed in $100,000 increments in line with CPI.
TIP: Clients with balances over the transfer balance cap on 1 July 2017 will need to either:
- Commute the excess balance held in the pension phase back into the accumulation phase or
- Withdraw the excess amount from their entire super fund.