Your guide to utilising super contributions

This year’s budget announced a range of proposed changes to superannuation legislation.  Many of the announcements are set to commence on 1 July 2017 and this creates a window of opportunity for those who may be impacted.

To help you, we have outlined a range of considerations you may need to make when it comes to contributing to super and some things you can do now.

1. Utilise your concessional contributions

The budget changes propose to reduce the concessional (before tax) contribution limit to $25,000pa for everyone, regardless of age. Currently the concessional contribution limit is $30,000pa up to age 49 and $35,000pa age 49 and over.  If you are looking to top up your super, take advantage of the higher concessional contribution cap before 30 June 2016 and again next financial year before 30 June 2017.

If you earn between $250,000 and $300,000pa, it’s likely you’ll be impacted by the proposed increase in the super contributions tax from 15% to 30% from 1 July 2017 (currently, the 30% tax applies from $300,000pa).  If you expect to be caught by this change, consider maximising your concessional contributions while the 15% contributions tax still applies to you.

If you’re not in a position to take advantage of your before tax contributions between now and July 2017, then don’t worry.  Many people stand to benefit from the introduction of the proposed catch-up concessional contributions which will start from July 2017.  Under these changes, if your super account balance is under $500,000, you will be able to carry forward the unused portions of the concessional cap each year on a rolling basis for up to five years.  This will enable people who take time away from work and those who have variable work patterns, to catch up on super contributions.

2. Help your spouse build their super

If your spouse has taken time out of the workforce or earns less than you, you may wish to consider splitting your concessional super contributions with them to top up their balance. Ensuring that both members of a couple have an equal super balance (rather than just one having a large super balance) may become a more relevant strategy with the introduction of the proposed limit on the transfer of assets from super accumulation phase to pension phase at $1.6 million per person.  

If your spouse’s income is $10,800 or less you may qualify for the tax offset for superannuation contributions you make on his or her behalf.  From 1 July 2017, this threshold will increase to $37,000 so if you miss out now, you may be able to take advantage of this benefit later.

3. Review non concessional contributions

The budget proposes a limit for non-concessional contributions to a lifetime cap of $500,000.  This will be effective from 3 May 2016, and will include all non-concessional contributions made since 1 July 2007.

If you have been making after tax contributions to super you’ll need to review whether you have exceeded the proposed $500,000 cap.  If you are unsure, you can confirm with your adviser or ask your superannuation fund to confirm in writing what non-concessional contributions you have made since 1 July 2007 to see how much of your lifetime limit you have left.  If you’ve been making contributions to more than one fund, or you’ve transferred your superannuation from one provider to another, you may need to also contact them to work out what contributions you’ve already made. 

You will not be able to make any further non concessional contributions if you have reached or exceeded the $500,000 cap.  But if you haven’t yet reached your lifetime limit then you may wish to maximise these contributions if you have capacity to do so. Taking advantage of contributions will ensure you are accumulating money in the concessionally taxed super environment. Moving forward, monitor your contributions to ensure you don’t exceed the limit. 

4. Consider a transition to retirement pension

It’s been announced that the favourable tax treatment of Transition to Retirement Pensions will be cut which means that these arrangements will not be as tax effective after 1 July 2017. However, you still have the option of commencing and benefiting from a transition to retirement pension from now until 30 June 2017. 

If you have an existing Transition to Retirement Pension, you shouldn’t need to make any changes until 30 June 2017, but it will pay to check closer to this time the impact that these changes may have on the overall benefit of this strategy to ensure it remains appropriate after this time. 

Summary

We’ve made our comments based on an assumption that the Budget proposals will be legislated, however things may change following the election.  It’s also not unusual for budgetary changes to be adjusted, amended or scrapped.  Even if the budget changes do come through, superannuation will remain the most tax effective form of investment for most people.

Either way, forward planning and careful consideration of your personal finances is a good idea to ensure you’re maximising your superannuation contributions where possible and reasonable to do so.  And if you need assistance navigating these changes in relation to your situation, please contact us.