The Federal Government has passed its changes to Australia’s superannuation system, making it the most significant round of changes to super laws in the past decade.
The new laws affect individuals with relatively high super balances, and will change contributions rules and the tax breaks available to individuals.
While these changes do not apply until 1 July 2017, anyone who is affected by these changes are encouraged to get planning soon.
So what are some of the biggest changes? Let’s take a look.
Wealth accumulation restrictions
Anyone with an existing pension over $1.6 million will be required to reduce their balance to the new limit. In short, when it comes to converting super into an income stream, individuals with high balances – who at present are not restricted on the amount they can accumulate – will be restricted to $1.6 million in their pension accounts.
Transitioning to retirement
Effective from 1 July 2017, the Government will impose a ‘transfer cap’ of $1.6 million on the amount of super that can be held in a superannuation pension. It’s important to note that your overall super balance can be higher than $1.6 million, but anything over $1.6 million will be subject to an excess transfer balance tax.
There will be caps placed on the amounts you’re able to contribute to your super from 1 July 2017. The current $180,000 after-tax cap (also known as non-concessional contributions), and the three-year $540,000 bring-forward cap remains in place until June 30, 2017. From 1 July 2017, the annual non-concessional contribution cap will be reduced to $100,000 and the three-year ‘bring forward’ cap will subsequently be reduced to $300,000.
So what does all this mean for you? If you approaching retirement age, you have until June 30, 2017 to use the current caps and contribute up to $540,000 this financial year. Remember, the ‘bring forward’ rule allows you to bring forward three years of non-concessional contributions. In short, this rule allows you to make up to $540,000 in non-concessional contributions in a single financial year. You can always contact us to work out your options.
The new super reforms are designed to trim back on advantages for people with large super balances. The Government’s sole aim here is to reduce the number of people who aren’t using superannuation for its intended purpose of funding their retirement. From 1 July 2017, those earning more than $250,000 will pay 30% tax on their contributions while everyone else pays 15%.
Always seek professional advice
While we’ve outlined the main superannuation changes in this article, now is a good time to start planning and seek professional advice, so you can maximise your superannuation’s performance.
At BDH Leaders, we can advise you on how to best manage your superannuation so your future is secure.