On budget night 2016 the government introduced the biggest changes to Superannuation since the Simpler Super back in 2006. Many of the lucrative measures in superannuation were cut back on, particularly at the higher end of the wealth scale.
So, one would ask the question is it all doom and gloom? Probably not as the restrictions which came into effect will only effect a relatively small number of super fund members.
One change was the lifetime cap on non-concessional contributions at $500,000. Currently the limit is $180,000 per year. The cap applies to contributions from 2007. The amount of people who would have made contributions of this magnitude is not very high. Those who have made significant contributions of this nature should check just how much they have contributed and adjust future contributions accordingly. Most people contributing make concessional (tax deductable) contributions.
On this front the maximum concessional contributions will be lowered to $25,000 from 1 July 2017 from the present $30,000 for most and $35,000 for those over 49. It is expected that only about 3% of superannuation fund members will be affected by this measure.
There is also a reduction in the income threshold above which a person is required to pay an additional 15% tax on their concessional contributions from $300,000 to $250,000. An estimated 1% of superannuation fund members would be affected.
The tax exempt status of income from assets supporting Transition to Retirement pensions will be removed from 1 July 2017. The availability of TTR income streams remains as an option though which is still a great benefit for those over 60 using re-contribution strategies.
There is also going to be a cap of $1.6 million on the amount that can be transferred to a tax free retirement account. Again, it is not expected that this will affect too many people as the average superannuation balance for a 60 year old currently at $285,000.
There was, of course, some relaxing of legislation around superannuation as well. The most significant of these was the removal of the work test for people between 65 and 74 meaning that this group can now make personal contributions with less restriction. There is also the removal of the 10% rule for claiming deductions which affected many self-employed people. Also being introduced is the capability to carry forward unused contribution caps for a period of five years. So if you don’t use your full deduction in a year it can be used in subsequent years. There is also a raising of the income level a spouse can earn from $10,800 to $37,000 for a spouse contribution to qualify for the 18% offset.
So, in spite of the new measures, superannuation remains a tax privileged way of holding investments to provide for your retirement and there are still a number of strategies available to maximise what can be done in this area. Obviously there is not a one size fits all strategy as everyone’s circumstances are different, but superannuation, particularly SMSF’s, remains an exciting sector to be utilised in any wealth creation initiative.
Also Read: Do I need my own Super Fund