Understanding how to take advantage of superannuation laws can be the key to your retirement and financial future. A number or changes took effect from 1 July 2017 and have created a raft of opportunities to maximise your super.
Some features of the law will remain unchanged, such as the rate of compulsory employer super contributions which must be paid is still 9.5% and tax-free superannuation for those over 60 is available to a limit.
Many features have been reformed, such as greater superannuation tax concessions and notably, the opportunity for first-home owners to utilise their super to invest in property.
Changes to your Retirement Plans
The means testing for age pension assets will be tightened so than rather than losing $1.5 for every $1,000 over the full age pension threshold, a retiree will lose $3.00 for every $1,000 of assets over the full age pension threshold.
Annual Concessional (before-tax) contributions cap reduced to $25,000
The general concessional cap has been lowered to $25,000 from $30,000 and the special over 50s cap of $35,000. This now measure is anticipated to raise $2.43 billion in the next four years.
There will also be catch-up concessional contributions from 1 July 2018, which will ensure that unused portions of the concessional cap from each year can be rolled over for up to five years if those who have a superannuation balance under $500,000.
Increase in tax-deductible super contributions
Those who are over 75 will be able to claim tax deductions for personal superannuation contributions. Which is intended to provide assistance to those whose employer will not allow salary sacrifice contributions. This new measure is estimated to cost $1 billion over the next four years.
Yearly non-concessional (after-tax) contributions cap reduced to $100,000
A $100,000 non-concessional (after-tax) contributions cap has been introduced which will have no age-limitations. Additionally. A $300,000 non-concessional cap will be allowed over a three-year period. These non-concessional contributions will only apply to those with a total superannuation balance of under $1.6 million.
Increase in income threshold for spouse superannuation tax offset to $37,000 (and $40,000)
The spouse superannuation contributions offset enables a contributing spouse to claim an 18% offset worth up to $540 for contributions made to an eligible spouse’s superannuation account. The income threshold for the spouse superannuation offset has increased from $10,800 to $37,000 and phases out at $40,000. This means that the income threshold for an eligible spouse will start at $37,000 and will phase out at $40,000.
$1.6 million transfer balance cap
A $1.6 million superannuation transfer balance cap has been placed on the amount of superannuation that a person is able to transfer into retirement phase. Any earnings made during retirement will subsequently not need to be withdrawn or reclassified. The cap will be indexed at $100,000 increments, which will correspond with inflation.
Low Income Superannuation Tax Offset to Replace LISC
The ATO continues to pay the Low Income Superannuation Tax Offset, which is a refund of contributions tax into an individual’s super account. Those who earn under $37,000 who pay concessional contributions will be eligible for a refund of up to $500 per annum for contributions tax deducted from super contributions.
The $37,000 threshold will apply to an individual’s adjusted taxable income, which will include non-SG concessional contributions net investment losses and so on.
Removal of Tax Exemption for Transition-to-Retirement Pensions (TRIPs)
The Federal Government has resolved to remove the tax exemptions for fund earnings derived from assets supporting a transition-to-retirement phase. Previously, the earning on superannuation assets used to finance a transition –to-retirement were tax exempt. This change is anticipated to raise $650 million in four years.
30% tax on super contributions
Since the Division 293 tax threshold was lowered from $300,000 to $250,000 many Australian have been paying double contributions tax (15% + 15%). This means that all concessional contributions are hit with a 30% tax, rather than a 15% tax. Public sector funds are also no longer exempt from contributions tax. This is anticipated to raise $2.5 billion over four years.
Access to your superannuation will be released upon you reaching preservation age and retirement. Your preservation age can be determined as follows:
- Those who turned 55 on or after 1 July 2015 will have a preservation age of 56 years;
- Those who were born on or after 1 July 1960 and before July 1961 will have a preservation age of 56 years;
- Those who turn 55 on or after 1 July 2016 will have a preservation age of at least 57 years;
- Those who were born on or after 1 July 1961 and before July 1962 will have a preservation age of 57 years; and
- If you were born after June 1962, your preservation age is at least 58 years and up to 60 years.
Age Pension age now 65.5 years
The Age Pension eligibility age has been increased to 65.5 years and will continue to increase in increments of 6 months every 2 years until it reaches the age of 67 years from 1 July 2023.
First Home Super Saver Scheme
It will now be options for Australians to make voluntary super contributions up to $15,000 per annum to a maximum of $30,000 over several years to go towards the purchase of a first home.
SMSF Trustees to Face Greater Penalties
If a SMSF trustee breaches super rules, they may face greater consequences. For one breach, a SMSF trustee can anticipate an automatic administrative penalty of between $1,050 (previously $900) to a maximum of $12,600 (previously $10,800).
No ability to treat pension payments as a lump sum payment
Australians are no longer able to treat certain superannuation pension payments as lump sums for tax purposes. This applies to circumstance where an individual under 60 treats these payments as a minimum pension payment. If all pension payment eligibility requirements are met, the person will be able to use the low-rate cap. Enabling tax-free payments of the taxable component of the lump sum payment, to a lifetime threshold of $200,000.
Removal of anti-detriment provisions
Funds are no longer able to pay a refund of a member’s lifetime super contribution tax payments into an estate and the superfund is equally unable to claim a tax deduction for this payment.
Tax Exemption for Retirement Products
Tax exemptions in the retirement phase will now apply to deferred retirement products and group self-annuities.
Contact one of our experienced accountants at Best Business Practice today for advice regarding your ability to maximise your superannuation and save for your retirement. Phone to book an appointment today on 02 6672 6700.