The clock is ticking and there is now less than 8 weeks until the new super changes take effect. Some of the issues to be aware of include:
Making before-tax contributions
Right now the total amount you can contribute to your superannuation before tax, is capped at:
- $35,000 per year if you are aged 50 or over.
- $30,000 per year if you are aged under 50.
The cap will reduce to $25,000 per financial year from 1 July 2017, regardless of age.
So now might be a great opportunity to take advantage of the current higher cap to boost your super.
There will be additional flexibility from 1 July 2018 if you have less than $500,000 in total superannuation which will allow you to carry forward your unused before-tax (concessional) contributions for up to five years.
Making after-tax contributions
Take advantage of the current higher after-tax contributions cap to boost your super before it changes.
From 1 July 2017, the cap on after-tax contributions will reduce to $100,000 per financial year. It’s currently $180,000 for those under 65 years. From 1 July you will also only be able to make after-tax (non-concessional) contributions if your total super balance is less than $1.6 million.
If you have spare cash on hand, whether an inheritance, dividend payments, a bonus or even just change after bills, you might consider contributing this to your superannuation sooner rather than later.
And, if you are aged under 65, you can bring forward up to three years of after-tax contributions, allowing you to invest up to $540,000 in one go. This cap will change to $300,000 from 1 July this year.
Consider making an after-tax contribution before the cap changes and boost your superannuation
Transition-to-Retirement (TTR) pension
If you’re currently invested in a TTR pension, from 1 July 2017, the earnings from this pension will be taxed at up to 15% pa (compared to its current tax-free status).
It is important to consider whether a TTR pension will still be viable for you going forward.
Transfer balance cap
From 1 July 2017, the maximum amount you can have invested in the retirement phase will be $1.6 million. If you’ve already retired and your balance exceeds this cap then you will be required to either:
- Move the excess back to the accumulation phase or
- Withdraw the amount as a lump sum by 1 July 2017 or have a tax penalty applied.
If your balance exceeds the cap by $100,000 or less, you will have until 31 December to reduce the balance below $1.6 million.
There are special rules for those receiving defined benefit pensions / market linked pensions in terms of how they are assessed for transfer balance cap purposes.
Capital gains tax relief (CGT)
Generous capital gains tax relief may be available if you have to transfer assets from pension phase to accumulation. This includes retirees with more than $1.6 million in pension phase, as well as those receiving a TTR pension.
The CGT provisions are complex and every situation needs to be assessed on a case by case basis.