Confused about the superannuation rules? Here are the current rules for contribution limits in the 2016/17 financial year.
In the 2016 Federal Budget, the government proposed a number of changes to the superannuation rules, some of which were to apply from Budget night (i.e. 3 May 2016).
Since then, there’s been a lot of debate about those proposals, and some of them may not be passed in parliament.
So, where does that leave you for your superannuation planning for this financial year?
Here’s a summary of where it all stands:
Contributions which qualify for a tax deduction
This is known as a concessional contribution and is limited to $30,000 for those aged less than 49, and $35,000 for those aged 49+ in the year of contribution.Generally you can only qualify for a tax deduction if you are fully or ‘substantially’ self-employed.However, employees can get similar benefits by contributing to super via pre-tax salary sacrifice which reduces their assessable income.
The limit includes any Super Guarantee your employer pays on your behalf.Please note if you are aged 65 to 75, you must pass a work test to be eligible to contribute to super. People aged more than 75 are not eligible to make personal contributions.
Contributions which do not qualify for a tax deduction
You could also invest up to $180,000 p.a. in super as a personal non-concessional contribution (i.e. you do not receive a tax deduction on this contribution).If you are under age 65, you can bring forward up to two years of non-concessional contributions.This means you could contribute $540,000 in one financial year – as long as you have not triggered the ‘bring forward’ provision in the previous two financial years.
If you do use the ‘bring forward’ provision entirely, you cannot make a non-concessional contribution for the next two years.
Proposed Lifetime Non-Concessional Cap
It was proposed in the 2016 Federal Budget that, effective 3 May 2016, a lifetime cap of $500,000 would be introduced for non-concessional contributions, which would include all non-concessional contributions made since 1 July 2007.This proposal has since been dropped and replaced with a new proposal to reduce the non-concessional limit to $100,000 per year ($300,000 using two years of ‘bring forward’). This measure has not been legislated (at time of writing).Regardless of the final look and feel of the superannuation measures to be implemented, it is clear that the current non-concessional cap of $180,000 ($540,000 bring forward), will not likely continue in the 2017/18 year and beyond.
Proposed super pension cap of $1.6m
It has also been proposed that the maximum amount of superannuation that can be used to fund a tax-free pension in retirement be restricted to a ‘balance cap’ of $1.6 million per member.This has the effect that when transferring a member’s superannuation accumulation to pension phase to start an account-based pension to fund retirement, any balance above the $1.6 million balance cap will need to remain in accumulation phase where it will continue to be taxed at the (albeit concessional rates) applicable to superannuation, rather than being tax free.At the time of writing this measure has not been legislated. Regardless of whether $1.6 million is the amount finally agreed upon by the Parliament, it is likely a cap of some description, whether that be on the capital used to fund a pension, or the maximum amount of tax-free earnings available to members, will be implemented for 2017/18.
The Low Income Superannuation Contribution
The Government currently provides a contribution of up to $500, equal to 15% of concessional contributions made, up to $3,333, for workers with an adjusted taxable income of up to $37,000 p.a.The Low Income Superannuation Contribution (LISC), is set to be abolished from 1 July 2017 but is expected to be replaced with a Low Income Superannuation Tax Offset ( LISTO) that will achieve the same outcome. This new measure has not, at the time of writing, been legislated.
The Government co-contribution
Currently, if you are working, and make a non-concessional contribution to super, and earn up to $51,021 this year, you are eligible for a super co-contribution from the Government of up to $500.
If your partner’s income is less than $13,800, you could qualify for a tax offset of up to $540 on the first $3,000 you contribute to superannuation for them from your after-tax income. This tax offset decreases as your partner’s income increases above $10,800.Interestingly, the income threshold for the Spouse Superannuation Tax Offset is proposed to increase from $10,800 to $37,000 from 1 July 2017 but this has not, at the time of writing, been legislated.
Disclaimer:This article has been produced by Australian Unity Personal Financial Services Ltd (‘AUPFS’) ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459 of 114 Albert Road, South Melbourne, VIC 3205. It does not represent legal, tax, or personal advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. AUPFS is a registered tax (financial) adviser and any reference to tax advice contained in this document is incidental to the general financial advice it may contain. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Nothing in this document represents an offer or solicitation in relation to securities or investments in any jurisdiction. Where a particular financial product is mentioned, you should consider the Product Disclosure Statement before making any decisions in relation to the product and any particular outcome or future performance is not guaranteed. Whilst every care has been taken in its preparation, AUPFS and its related bodies corporate make no representation as to its accuracy or completeness. Published in October 2016 © Copyright 2016