The Federal Government has been making significant changes to the way in which superannuation is dealt with.
Many of the changes come into effect on 1 July 2017 and significant advantages may be available for those to take advantage of the current rules.
This is a complex area and one in which it is important to obtain proper financial and related advice before making any decisions.
Non-Concessional Contributions (NCC) are contributions made to super from after-tax monies.
There are limits to the amount of NCC that can be made. These change from 1 July 2017.
- Present NCC Cap – $180,000 per annum
- NCC Cap from 1 July 2017 – $100,000 per annum
Note that the 3 year $540,000 “bring forward rule” will be $300,000 from 1 July 2017, subject to transitional rules for those who have already triggered the rule.
Concessional Contributions (CC) are contributions made to super from pre-tax monies, including those from salary sacrifice arrangements. Concessional contributions are taxed within your superannuation fund at rates depending on your income. Concessional contributions are generally tax deductible.
The concessional contributions limits will change from 1 July 2017.
- Present CC Cap
- $35,000 per annum (aged 49 or over)
- $30,000 per annum for all others
- CC from 1 July 2017
- $25,000 per annum regardless of age
The concessional contributions will no longer be affected by age from 1 July 2017 and there will also be no requirement for less than 10% of your income to be from employment to claim any contribution as a tax deduction.
This means that more people (including employees) can contribute to super and claim a tax deduction for the concessional contribution.
Salary sacrifice arrangements may need to be adjusted due to the lower cap.
$1.6M TRANSFER BALANCE CAP
Superannuation is either in accumulation phase (where contributions are made during your working life etc) or in retirement phase (where you no longer work and can access your super). Earnings in accumulation accounts are taxed at 15% whereas earnings in retirement phase are tax free.
From 1 July 2017, the total amount of super benefits a person can transfer to the retirement phase is limited to $1.6M.
TRANSITION TO RETIREMENT INCOME STREAMS
Transition to retirement (TTR) strategies allow people to reduce the number of hours they work in the lead up to their retirement without reducing their take home pay or to continue working on a full time basis but obtain significant tax savings by salary sacrificing superannuation and supplementing their take home pay with a pension or income stream (an income swap).
Presently, pensions are tax free however, from 1 July 2017, they are taxed at up to 15%.
Consideration needs to be given to whether it remains in your interests to continue with a TTR strategy or whether to roll the pension/income stream back to accumulation phase.
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Fionne McKillop is principal financial planner at McKillop Financial Planning and owns her own law firm McKillop Legal, which is expert in estate planning, business succession and commercial law.