THE superannuation system is set for a shake up.
From 1 July 2017, the government will lower the annual cap on concessional (pre-tax) contributions to $25,000, reduce the income threshold by which high-income individuals are required to pay 30 per cent tax on their concessional superannuation contributions to $250,000 per annum and extend the eligibility for personal tax deductions.
MyState Wealth Management financial planner Matthew Khourey said this new legislation was expected to ensure the system was more equitable and sustainable, as more people would be able to benefit from tax advantages to boost their savings.
Let’s take a more detailed look at some of the upcoming changes and what they will mean for Australians saving for retirement.
Annual concessional caps (pre-tax)
As it currently stands, the cap is $30,000 for those aged under 40-years at 30 June 2016 and $35,000 for those aged 49-years and older at 30 June 2016.
Often, these contributions are in the form of employer contributions, such as super guarantee and salary sacrifice contributions.
In the new financial year, the government will reduce this cap to $25,000 for all Australians.
This means that those aged 50-years and older will be subject to a cap that is around a third lower than what they currently enjoy.
If you find yourself negatively impacted by the new caps, you may wish to consider the new carry forward rule, which comes into effect on 1 July 2018.
The new carry forward rule provides individuals with a total superannuation balance of less than $500,000 the opportunity to carry forward unused cap amounts for five financial years.
Now is the time to seek advice and revise your contribution strategy before the change takes effect.
Reduction in income threshold where additional super contribution tax applies
In addition to the annual concessional cap changes, the income threshold (where additional super contributions tax applies) will be reduced from $300,000 to $250,000 per annum.
From 1 July 2017, those with incomes greater than the new $250,000 threshold will be required to pay 30 per cent tax (up to 15 per cent) on concessional contributions.
While most Australians will not be affected by the lower caps and higher tax rates, if you’re a high income earner or have a large amount of money in super, you should consider revisiting your strategy to ensure you get the best financial outcomes and avoid any potential penalties by exceeding the new caps.
Personal tax deduction eligibility extended
Currently only certain people can claim tax deductions for personal contributions.
However, as a result of the change from 1 July 2017, all individuals under the age of 65-years (and all those under the age of 75-years who pass the “work test”) will enjoy more flexibility by being able to claim a tax deduction for personal contributions made to super.
These contributions are taxed at the universal “concessional” rate of 15 per cent, which us known as the “contributions tax.”
Mr Khourey said the new legislation would have both a positive and negative impact on Australians.
“Whatever your circumstances, it is a good idea to consult a financial planner before 30 June 2017 to find out if there is any action you need to take, both before and after the changes take place,” he said.
For more information, phone Matthew Khourey at MyState Wealth Management on 1300 651 600 or visit www.mystate.com.au/wealth.
Information is current as at 21 February 2017. This is general advice only, before making any decisions please speak with a MyState Wealth Management Financial Planner.