Recent changes to super may mean your retirement income may no longer be ‘tax-free’.
If you are close to retirement and considering converting your super into a tax-free income stream, it’s important to understand how changes to super may affect you.
New legislation relating to super came into effect from 1 July 2017, and it may mean you will need to reconsider how you plan for your retirement.
A capped superannuation balance
A new $1.6 Million Balance Transfer Cap was introduced on 1st July 2017. If your super balance has reached $1.6 Million, you will no longer be able to make non-concessional (after-tax) contributions. Further, if you have already retired and hold more than $1.6 Million in retirement income streams, you must reduce your balance to below $1.6 Million.
If you have exceeded or are close to reaching this cap, there are a number of options you can consider, including but not limited to:
a) If you have retired or meet a condition of release, you can opt for a lump sum benefit to remove funds above the cap from super;
b) You can opt for a lump sum benefit to be paid (as in a) above) and use the funds to make non-concessional contributions to your spouse;
c) You can transfer excess funds back to the accumulation phase.
There are tax complexities and implications which need to be considered when transferring assets from retirement phase (tax-free) into accumulation phase (taxable), so it’s important to seek professional advice.
Do you have or are you considering a Transition to Retirement strategy?
If you are aged between 60 and 65 and have not fully retired but are looking to start drawing down on your super, it’s important to note that the assets within your super account which support your Transition to Retirement income stream will no longer be tax-free.
From 1 July 2017, the earnings from these assets will now be taxed at 15% per annum. For some people, this may make a Transition to Retirement strategy less attractive. It’s important to seek professional advice to understand how this change may impact on your personal circumstances.
Earning more than $250,000 per annum and contributing to super?
Anyone earning more than $250,000 total income per annum (being your assessable income, reportable super contributions and fringe benefits) is now liable to pay 30% tax on concessional (or tax deductible) contributions, as opposed to 15%.
It’s also important to consider that the cap for concessional contributions has been reduced to $25,000 per year. Concessional contributions include employer Super Guarantee contributions, salary sacrifice contributions and personal concessional contributions. If you exceed the concessional contributions cap, penalties will apply.
We strongly recommend that you review your superannuation and retirement strategy to consider your salary sacrifice arrangements and if the changes will impact upon your retirement strategy.
The rules have changed and we encourage you to seek professional financial advice to understand how the reforms may impact on your personal situation and to review appropriate options and strategies aligned to your financial goals.
If you would like advice on how the changes may affect how you plan for retirement, I invite you to contact our office on 07 3720 1299 or email admin@wealthfundamentals.com.au so we can help you to make the most of your Super.
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based upon our understanding of legislation at the time of writing. Such legislation may be subject to change.
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