Super Reforms - What you need to know

What do I need to do about the Super changes?

With so many legislated changes to Super coming into effect on 1 July 2017, it can be difficult to know which affect you and what you need to do. There may be actions you must take before June 30 to avoid penalties, and now is also a good time to review your Super strategy to make the most of your retirement savings.

Please read the Super Reforms checklist below which helps you understand the changes and how they may affect you.

1. Do you have salary sacrifice arrangements in place?

You only have a few months to contribute up to $30,000 in pre-tax contributions (or $35,000 if you are over 50). The Cap for pre-tax or Concessional Contributions will reduce to $25,000 for everyone from 1 July, 2017. Concessional Contributions include employer Super Guarantee Contributions as well as pre-tax personal deductible contributions. 

  1. To avoid penalties, you will need to review your salary sacrifice arrangements prior to June 30, 2017 and check that they are appropriate for the new caps that will be in place from 1 July, 2017.
  2. You may be able to claim your personal contributions as a tax deduction. From 1 July, 2017 it’s not just self-employed people who can claim a tax deduction. Personal Super contributions can also be claimed as a tax deduction. Personal contributions can be used to reach the $25,000 Concessional Contributions Cap.
  3. A Concessional Contribution catch up provision will also be introduced in 2019/20 for Super funds with an account balance of less than $500,000. This will allow you to carry forward any unused portions of pre-tax contribution allowances for up to five years, helping you to build your Super balance.

Concessional Contributions include your employer’s 9.5% contribution and contributions are taxed at 15% (or 30% for income earners with an income over $250,000 from 1 July 2017). If you exceed the Concessional Contributions cap, penalties will apply. All contributions to Super are preserved until you meet a condition of release, such as retirement.

2. Do you earn more than $250,000 per annum including super?

Concessional contributions into Super are taxed at 15%, however higher income earners are liable to pay 30% tax on Concessional Contributions. From 1 July, 2017 the income threshold for paying the 30% tax (Division 293 tax) will reduce from $300,000 to $250,000.

  1. If you will be affected by the reduction in income threshold and will be liable to pay the additional tax, consider making the most of your pre-tax allowances before June 30, 2017.
  2. You may need to review your superannuation and retirement strategy to understand how the additional tax will impact on your retirement savings.
  3. Consider events which may affect your income including redundancy payments or capital gains. If you exceed the $250,000 income threshold you will receive a Division 293 Notice, which may be issued more than 12 months after you have exceeded the income threshold. 

3. Are you making after-tax contributions to Super?

Your ability to make large after-tax contributions to super will be significantly reduced from $180,000 per annum to $100,000 per annum from 1 July, 2017. You have a few short months to take advantage of the bring-forward rule that allows you to contribute up to $540,000 this financial year. 

  1. If you have large sums of money available (for example from an inheritance or sale of a property) that you wish to contribute to Super, you must act now before changes to the rules reduce your ability to transfer large amounts into Super. From 1 July, 2017 the bring-forward rule, which allows people under 65 years of age to bring forward 3 years of Non-Concessional Contributions, will reduce to $300,000 in one financial year.
  2. If you have more than $1.6 Million in Super, you will no longer be able to make Non-Concessional Contributions due to the introduction of the $1.6 Million General Balance Cap from 1 July, 2017.

Non-concessional Super contributions are preserved until you meet a condition of release, such as retirement. If you exceed the Non-Concessional Contributions cap, penalties will apply. Non-concessional Contributions are not subject to 15% contributions tax as you are contributing after-tax money.

4. Are you holding more than $1.6 Million in Super?

A new $1.6 Million Balance Transfer Cap will be introduced on 1 July, 2017. If your Super balance has reached this amount, you will no longer be able to make non-concessional contributions. Further, if you are retired and have more than $1.6 Million in retirement phase income streams, you will need to reduce the total value of your retirement phase income stream to below $1.6 Million. 

  1. The maximum amount you will be able to have in a pension phase is $1.6 Million from 1 July, 2017. If you have excess funds in pension phase you may reduce the amount through a number of options:
    • opt for a lump sum benefit and remove excess funds from Super,
    • use a lump sum benefit and use the funds to make Non-concessional spouse Super contributions, or
    • transfer excess funds back to the accumulation phase.
  2. You may be eligible for Capital Gains Tax relief. Provisions for Capital Gains Tax relief have been introduced for trustees of Super funds who are required to move assets from the pension phase back to accumulation phase due to the introduction of the $1.6 Million Balance Transfer Cap. There are tax complexities and implications which need to be considered when transferring assets from a pension phase (tax-free) back into the accumulation phase (taxable environment), so it’s important to seek advice.

5. Are you considering a Transition to Retirement Strategy?

Your assets which support a Transition to Retirement income stream will no longer be tax free inside your super fund from 1 July, 2017. These assets will be taxed at 15% per annum from 1 July, 2017. This will affect new and existing Transition to Retirement pensions. 

  • A Transition to Retirement Strategy may be considered by people aged between 60 and 65 years of age, not fully retired and wanting to start drawing down on Super before retiring and meeting full retirement conditions of release.

6. Are you contributing Super to your Spouse’s Super?

Currently a tax offset is available for a person contributing to a spouse’s Super fund, where the spouse’s income is less than $10,800 per annum. From 1 July, 2017, the spouse’s income threshold increases to $37,000 for the tax offset to apply.

  • The tax offset of up to $540 will now be available where the spouse earns up to $37,000. Contributions to a spouse’s Super will be included as Non-Concessional Contributions. A spouse must be under the age of 70 to be able to receive the contribution.

We encourage you to seek professional financial advice to understand how the complexity of 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 your Superannuation and retirement planning, I encourage 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 Australian Credit Licence No. 357306 trading as Fortnum Financial Advisers.
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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