Wealthy Australians will be most affected by the significant rule changes to superannuation (and tax) that are now in place, but not only them. There’s new rules for low-income earners, for spouses and others – so it’s good for all of us to be aware of what’s going on.
The self-employed could benefit from some tax-concession measures, as could those who’ve had a break from the workforce (often women acting as carers) through catch-up concessional super contributions. These changes may not impact you immediately, but they could very well impact your contributions or retirement plans down the track.
Key changes to be aware of
- Generally up to $1.6 million of super retirement savings can be moved into an account for you to draw a pension from. Previously there was no limit. This is likely to be a significant issue for high-net worth retirees. People already retired with income-stream balances more than $1.6 million may face penalties. Those impacted by the changes should seek professional advice before taking action.
- While you can now only contribute $25,000 a year to your super as a concessional contribution, if you don’t, or contribute less than this, you can add an unused amount of the concessional contributions cap to next year’s limit.* So in the future if you only contribute $10,000 in one year, you could contribute $35,000 the next year. To be eligible for this rule, your total super balance must be less than $500,000 before the start of the financial year. Unused amounts can be carried forward for a maximum of five years.
- From after-tax earnings, you could contribute $100,000 each year to super (down from $180,000). If you are aged under 65, you may be eligible to bring forward two years of contributions allowing up to $300,000 of after-tax contributions.**
While some of these changes reduce the tax concessions available in super, especially for higher income earners, super remains a tax effective way to save for retirement, especially if you plan ahead.
For more information about the changes and how they may affect you, read on for more details. And:
Nine big super reforms
- Reduction in annual non-concessional contributions cap to $100,000 (or $300,000 if bringing two years of contributions forward, if eligible).
- Reduction in the annual concessional contributions cap to $25,000. This applies regardless of age and includes compulsory super from your employer.
- Catch-up concessional contributions available for those with total superannuation balance(s) less than $500,000.*
- Anyone under the age of 75 may be eligible to claim a tax deduction for personal super contributions. If you are aged 65 or over, you would need to meet work test. This could be beneficial for anyone who isn’t offered a salary-sacrifice arrangement with their employer and want to make additional tax deductible super contributions.
- An additional 15% tax on certain concessionally taxed super contributions, if your adjusted income exceeds $250,000 (including employer compulsory contributions and any salary sacrifice). Super continues to be tax effective for many depending on your marginal tax rate.
- Up to 15% tax on income of transition-to-retirement (TTR) super pension. TTR pensions are no longer considered a retirement-phase income stream. Pension payments from these super pensions continue to be tax-free if you are over the age of 60.
- Anti-detriment payments ceased for deaths from July 1, 2017. For deaths prior to this date an anti-detriment may still apply but the benefit must be paid before July 1, 2019.
- Offset for contributions to your spouse’s super (if your spouse earns under $40,000).
- Introduction of the low-income super tax offset (effectively a continuation of the low income super contribution). This contribution of $500 is paid into an individual’s super account. Those with an income of $37,000 or less may be eligible.
*These measures commenced July 1, 2017, except for the catch-up concessional contribution measure which will start July 1, 2018. Refer to The Australian Taxation Office website for more details.
** Your ability to make non-concessional contributions may be limited by your total superannuation balance(s) at the end of the previous financial year. For example, you cannot make any non-concessional contributions if your total superannuation balance(s) is $1.6 million or more at the end of the previous financial year.
Before taking action, re-directing your super or moving money into ANZ Smart Choice Super, you will need to consider whether there are any adverse consequences for you, including exit fees, other loss of benefits (e.g. insurance cover), investment options and performance, functionality, increase in investment risks and where your future employer contributions will be paid.
Taxation and superannuation law is complex and this information has been prepared as a guide only and does not represent advice. Please seek advice before taking action. The information provided is of a general nature and does not take into account your personal needs, financial circumstances or objectives.