Changes announced in 2016, including major changes to what you can contribute to your account and how, mean Australia’s superannuation system is about to undergo its biggest shake up in a decade.
These five significant changes will come into effect from 1 July 2017. Make sure you understand what they mean for you and speak to a Mercer financial adviser to help adapt your contribution strategy.
1. Reduced concessional (before-tax) contributions
The concessional contribution cap for before-tax super contributions – including employer Superannuation Guarantee payments and salary sacrifice – will drop to $25,000 a year for everyone; down from $30,000 for those aged under 50 and $35,000 for those 50 or older.
The change will make it more difficult to boost your super quickly in the years leading up to retirement, so you’ll need to start thinking about super earlier in your career.
The new caps don’t come into effect until 1 July 2017, so there’s still time to take advantage of the existing, more generous limits.
2. Reduced non-concessional (after-tax) contributions
After-tax superannuation caps will drop to $100,000 a year, down from $180,000. Those under age 65 will still be able to “bring forward” three years of after-tax contributions, but the limit will be reduced to $300,000, down from $540,000.
Under the new rules, you won’t be able to make any non-concessional contributions once your total super balance reaches $1.6 million.
Again, the new caps don’t come into effect until 1 July 2017 so there may still be time to take advantage of the existing, more generous limits.
3. Spouse contributions more widely available
The spouse tax offset will be extended to more couples. Before 1 July, 2017, a tax offset of up to $540 is available for individuals who make superannuation contributions to their spouse’s account – if their spouse’s total income is less than $13,800.
Under the new rules the offset will be extended to those whose recipient spouses earn up to $40,000. The offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.
The move means there is greater flexibility to support your partner and include spouse contributions as part of your overall strategy.
4. Widening access to concessional contributions
All individuals under the age of 65, and those aged 65 to 74 who meet the work test, will be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.
An income tax deduction for personal superannuation contributions before 1 July 2017 is only available to people who earn less than 10 per cent of their income from salary or wages.
5. Introducing catch up contributions
From 1 July 2018, super customers will be able to “carry forward” any unused concessional cap amounts for up to five financial years. This change will apply to people with total super balances of less than $500,000.
Unused amounts “carried forward” can only be used in subsequent years, so the first year in which you’ll be able to access the ability to contribute more than the normal cap is 2019–20.
Catch up contributions could be helpful for those who take time out of work, whose income varies considerably from one year to the next, or whose circumstances have changed and are now in a position to increase their contributions to superannuation.
NOW IS THE TIME TO ACT
Contribution caps are about to be slashed but current rules apply until 30 June 2017, providing an opportunity to increase your before-tax contributions. So if you have been thinking about putting more money into super, it’s time to act.
Before 1 July:
- Before-tax contribution caps are $30,000 a year for those under 50 and $35,000 a year for those 50 plus
- After-tax contribution caps are $180,000 a year
- The three-year bring-forward rule on after-tax contribution is $540,000 for those under the age of 65
If you’d like to speak to a Mercer financial adviser call 1300 850 580, or book an appointment today.