Changes to the superannuation rules will come into effect on 1 July 2017

While the government will reduce the amount of money you can put into super from 1 July this year, the good news is that you could still take advantage of opportunities before the financial year ends. While we don’t believe it’s fair that our clients are battling to keep up with ever changing superannuation rules, it is important that we are all aware of what the changes are.

Summary of the super cap changes

Contribution	Age	Current cap	Cap from 1 July 2017
Before-tax	Under 50	$30,000 per annum	$25,000 per annum
Before-tax	50 or over*	$35,000 per annum	$25,000 per annum
After-tax	Under age 65*	$180,000 per annum / Up to $540,000 under the bring-forward rules	$100,000 per annum / Up to $300,000 under the bring-forward rules
After-tax	65 or over	$180,000 per annum	$100,000 per annum

* At any time during this financial year

Note, if you’re 65 or over at the time of making a contribution, a work test must first be satisfied.

What you could do before the changes come in

Contribute more in before-tax (concessional) super contributions

The before-tax super contributions cap will be reduced from $30,000 per year (or $35,000 if you’re turning 50 or over before 1 July 2017) to $25,000 per year, for everyone, irrespective of age.

This means, depending on your circumstances, there is an opportunity to contribute an additional $5,000 (or $10,000 if you’re turning 50 or over) in before-tax super contributions than what will be possible before the cap is lowered on 1 July 2017.

Contribute more in after-tax (non-concessional) super contributions

The after-tax super contributions cap will decrease from $180,000 per year to $100,000 per year.

This means, depending on your circumstances, you could contribute $80,000 more in after-tax super contributions than what will be possible when the after-tax super contributions cap is reduced on 1 July 2017.

If you’re under age 65, you could also bring forward three years’ worth of after-tax contributions up to a maximum of $540,000, which is much higher than the $300,000 limit that will also apply from 1 July 2017.

Another thing to note is that from 1 July 2017, individuals with a total super balance of $1.6 million, or above, will not be able to make any further after-tax contributions. This means the current financial year may be the last opportunity where you can make an after-tax contribution to your super.

Everyone’s different, so you’ll need to consider your own circumstances and think about whether or not these options are right for you. See other important considerations below.

What else you should be aware of

A pension cap of $1.6m will come into effect

If you’re converting your super into a pension, from 1 July 2017 you’ll be restricted to a limit of $1.6 million in your tax-free pension account, not including subsequent earnings.

If you already have more than that, the excess will need to be placed back into the super accumulation phase (where earnings will be taxed at the concessional rate of 15%), or taken out of super completely.

Some higher income earners will need to pay additional tax

From 1 July 2017, those earning at least $250,000 (including your income before tax, as well as your before-tax super contributions) will pay an additional 15% tax on any before-tax contributions. This is on top of the concessional rate of 15%, bringing the tax rate to 30%.

Currently, this tax only applies to those earning $300,000 and above

Transition to retirement pensions will lose their tax exemption

Investment earnings on super fund assets that support a pension are currently tax free. However, this will no longer apply to transition to retirement (TTR) income streams from 1 July 2017.

Earnings on fund assets supporting a TTR income stream will be subject to the same maximum 15% tax rate that applies to accumulation funds.

There will be changes for defined benefit fund members

Pensions

Defined benefit pensions where income payments are over $100,000 per year will be subject to additional tax from 1 July 2017.

For taxed defined benefit pensions, 50% of income payments in excess of $100,000 per year will be considered taxable income, and will be taxed at your marginal tax rate.

For untaxed defined benefit pensions, the 10% tax offset that applies to income payments will be capped at $10,000 each financial year.

Contributions

Before-tax (notional) contributions to certain public sector funds will also count towards your before-tax contributions caps. If you plan on making contributions to other funds, this may impact you.

Why super matters

Australians are living longer and with many needing to fund a longer retirement as a result, adding to your super could make a difference to the lifestyle you lead in the years after you finish working.

To put it into perspective, September 2016 figures, provided by the Association of Superannuation Funds of Australia, show individuals and couples, around age 65, who are looking to retire today, need an annual budget of $43,372 and $59,619 respectively to fund a comfortable lifestyle. These figures assume individuals and couples own their home outright and are in relatively good health.¹

By comparison, the maximum annual Age Pension rate for a single and couple is currently $22,804 and $34,382 respectively², keeping in mind not everyone is eligible for government assistance.

Other key things to keep in mind

• If you contribute money to super that exceeds the super cap limits, additional tax and penalties may apply. You can find out more at the ATO website.
• The value of your investment in super can go up and down. Before making extra contributions to your super, make sure you understand and are comfortable with any risks associated with your chosen investment option.
• The government sets general rules about when you can access your super. Generally you can access it when you’ve retired and reached your preservation age, which will be between 55 and 60 depending on when you were born.
• There are other ways to help boost your super. There may also be benefits to making spouse contributions.

Where to go for more information

You’ll need to consider your own circumstances and before making any decisions, it’s a good idea to speak to your financial adviser.

You can give our office a call on 03 9481 2222 for any help regarding your superannuation or complete the form below and we’ll be in touch.