Will They Ever Stop Moving the Super Goal Posts?
Don’t let the changes to Superannuation put you on the sideline. Just because the Government has changed the goal posts, Campbell Green can help keep you in the game.
In last year’s Federal Budget, the Australian Government announced some significant changes to Superannuation, which took effect on 1 July 2017.
The changes were designed to improve the equity, efficiency and sustainability of super tax concessions. Whilst some of the changes might not affect you now, it is important to be aware of them for the future.
We’ve summarised the most significant changes for you here, to help keep you on track this financial year.
Offset for low income earners
If you earn less than $40,000, it doesn’t mean you can’t make your Super work for you.
To help offset the tax your superannuation fund pays on your contributions, the Government has introduced a low-income superannuation tax offset (LISTO). The LISTO provides support for low-income earners and ensures you do not pay more tax on your super contributions than on your take-home pay.
In addition, those earning less than $37,000 will receive a LISTO contribution to their super fund which will be equal to 15% of their total concessional (pre-tax) super contributions for the year, capped at $500.
Under the changes, the Government are also giving couples the opportunity to support each other in saving for retirement, by offering a spouse tax offset. What this means is that you will be able to claim the maximum tax offset of $540 if you contribute to the eligible super fund of your spouse (married or de-facto) and if your spouse’s income is less than $37,000 per year.
Another thing to be aware of for low income earners is the concessional contributions cap. Concessional contributions (including employer contributions, salary sacrifice and personal contributions claimed as a personal super contribution deduction) are paid before tax is applied and means that your super fund pays tax on the contributions at 15%. From 1 July 2017, the concessional contributions are now capped at $25,000.
More flexibility with contributions
In order to provide more flexibility when it comes to the use of concessional contributions, the Government has removed the 10% maximum earnings condition. This means that if you are under 75 years of age, you can claim a deduction for personal super contributions made on or after 1 July 2017 if you meet certain criteria, including the type of super account you hold, meeting age restrictions and you notify your fund in writing of the amount intended to claim as a deduction.
The contributions you claim as a deduction will count towards your concessional contributions cap. If the cap is exceeded, you will be required to pay extra tax and any excess concessional contributions will count to your non-concessional contributions cap, which has been reduced from $180,000 to $100,000 per year.
However, if your super balance is greater than or equal to the general transfer balance cap of $1.6 million, you won’t be able to make any further non-concessional contributions in the financial year without exceeding your non-concessional contributions cap. If it is less than the general transfer balance cap at the end of 30 June of the previous financial year, you may make after-tax contributions, depending on your total superannuation balance. You can learn more about this here.
Approaching Retirement?
If you are under 65 years of age and your total superannuation balance at the end of 30 June in the previous financial year is less than the general transfer balance cap, you will be eligible for a non-concessional contributions cap ($100,000 in 2017–18). You may also be entitled to a two- or three-year bring-forward period for your non-concessional contributions cap based on your total superannuation balance.
The rules around retirement income streams are also changing. Transition to retirement (TTR) pensions will become less tax effective and there will be a cap on how much you can transfer into a tax-free super pension.
For example, if you had a TTR pension of $200,000 and the investment earnings were $10,000 for the year, there is currently no tax on those earnings. From July, the earnings are now taxed at up to 15%, or up to $1,500 in this example, depending on the type of underlying investments.
The earnings of ordinary retirement pensions will still be tax free.
For those aged 60 years or older, income payments from an account-based super pension are tax free. However, there is now a limit on how much super you can transfer to a tax-free account-based pension. This is called the ‘transfer balance cap’. Initially set at $1.6 million, this is indexed by CPI and is rounded down to the nearest $100,000.
Only the unused portion of your cap will be indexed so once you have reached the transfer balance cap you won’t be entitled to further indexation. You can have multiple transfers to pension accounts, as long as the total amount transferred into an account-based pension is under the cap.
Investment earnings will not affect your transfer balance cap and TTR pensions will not count towards your transfer balance cap. There is no limit on how much you can have in your accumulation super account.
Why is your Total Superannuation Balance important?
The concept of ‘total superannuation balance’, which took effect from the end of 30 June 2017, is a way to value your total super interests on a given date. It is important to note what your balance is, as it can affect your concessional and non-concessional contributions.
If you’re unsure on how to you work out your total superannuation balance or why it’s important, contact us today and we would be happy to guide you through it.
Carry it forward
From 1 July 2018, you will be able to ‘carry-forward’ any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
First Home Super Saver Scheme
Designed to help first home buyers to get on the ladder sooner, from 1 July 2017 the First Home Super Saver Scheme will allow individuals to contribute $15,000 per year to their super, up to a total of $30,000, on top of the existing compulsory super contribution.
Do you earn more than $250,000 per year?
If your combined income and super contributions exceed $300,000 you may have to pay extra tax on the excess, this is known as Division 293 tax. From July, the threshold for Division 293 tax is now reduced to $250,000, meaning more higher income earners will have to pay extra tax.
Your Super is your future, so it’s important to be aware of the changes that are being put in place. If you’re unsure and want to speak so someone about how these changes will affect you, contact us at Campbell Green today.
