On Wednesday 9 November 2016 the Government introduced its superannuation legislation which makes changes to the superannuation laws it originally announced in the 2016 Federal Budget.
Most of these changes will apply from 1 July 2017 so it might be sensible to for you to start thinking about how your superannuation will be impacted by the changes now and whether you might need to change any of your SMSF’s arrangements.
Changes in the legislation which you might need to consider include:
- The new $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase from 1 July 2017.
- The lower contribution caps for all taxpayers applying from 1 July 2017. The new caps will be
- Concessional contributions (pre-tax contributions) — $25,000 per year.
- Non-concessional contributions (after-tax contributions) — $100,000 per year.
- Reducing the income threshold at which individuals are required to pay an additional 15 per cent contributions tax, from $300,000 per year to $250,000.
- Providing greater flexibility for those with broken work patterns by allowing individuals with balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years.
- Removing the tax-free treatment of assets that support a transition to retirement income stream.
Some of these changes may require you to adjust your investment, contribution, pension and estate planning strategies going forward.
This will most likely be the case if you have a superannuation balance of over or close to $1.6 million, were planning on making significant contributions to superannuation in the next few years, are a high income earner or have a transition to retirement pension in place now.
Contributions – what the changed concessional and non-concessional caps may mean for you
With many of the changes announced in the 2016 Federal Budget now passed by Parliament, there is an amount of certainty that you can have when approaching your SMSF planning and the contributions you might wish to make to your SMSF.
The Government is lowering both the concessional (pre-tax) and non-concessional (after-tax) contribution limits from 1 July 2017.
One of the original proposed measures which received a lot of comment and caused concern was the $500,000 lifetime non- concessional contributions (after-tax contributions) limit. This proposed measure was dropped and replaced with a $100,000 annual limit on after-tax contributions.
Pre-tax contributions will be limited to $25,000 for all taxpayers from 1 July 2017.
Below is a summary of the changes for both concessional and non-concessional contributions.
After- tax contributions
- The $500,000 lifetime limit has been dropped in favour of a $100,000 annual cap. The rules allow the opportunity to bring forward three years of contributions – making it possible to contribute $300,000 in one year.
- For the 2016/17 year, it is still possible to make a contribution of up to $180,000 for one year, or to bring forward three years’ contributions – so you are able to make a contribution of up to $540,000. If you do not use this full limit of $180,000 or $540,000 in the 2016/17 year, then you will be limited to the $100,000 annual and $300,000 bring forward caps for future years.
- Where the bring forward of contributions has been triggered before 1 July 2017, transitional contribution caps may apply
- If you have a balance of $1.6m or more in your SMSF at 1/7/2017 then you will not be able to make further after-tax contributions.
- When approaching the $1.6m cap care will need to be taken with the bring forward rules as these are restricted by the new $1.6 million balance restriction.
- The concessional contributions cap is lowered to $25,000 per year for all taxpayers from 1 July 2017.
- Taxpayers who were aged 49 or over on 30 June 2016 can make up to $35,000 in pre-tax contributions in 2016/17.
- Those aged under 49 on 30 June 2016 can make up to 30,000 in pre-tax contributions in 2016/17.
Some of these changes may require you to adjust your contribution strategies going forward.
This will most likely be the case if you have a superannuation balance of over or close to $1.6 million or were planning on making significant contributions to superannuation in the next few years.
How can we help?
If you are concerned that the Government’s changes to superannuation are going to affect you, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.
Seek out further advice and start your journey to being free around your money and creating wealth with understanding.
Scott Malcolm has been awarded the internationally recognised Certified Financial Planner designation from the Financial Planning Association of Australia and is Director of Money Mechanics. Money Mechanics is a fee for service financial advice firm who partner with clients in Melbourne, Canberra and Sydney to achieve their life and wealth outcomes. We are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.