As part of the 2016 Federal Budget, the Australian government proposed numerous changes to its superannuation legislation.
And these changes, which largely come into effect on 1 July 2017, are anything but minor tweaks. Industry experts are calling them the biggest changes to Australia’s superannuation system since 1 July 2017, and believe it will significantly affect how people plan for retirement.
Unfortunately, there’s a common misconception that the changes will affect only the wealthy and those who have already retired. The truth is, pretty much everyone will be affected by these changes.
Don’t believe me? Let’s look at the changes that are coming, and who they’re aimed at.
If you’re aged between 18 and 75 and still working
- The concessional contribution cap¹ will be lowered to $25,000 per year. The good news is you’ll be able to put extra money into your super and claim it (up to $25,000 per year).
- The non-concessional (after tax) contribution will be lowered to $100,000 per year (or $300,000 for three years).
- From 1 July 2018, your unused concessional cap of $25,000 can be carried forward and used in the next five years. The only condition is your total superannuation balance must be under $500,000.
- Once you reach a balance of $1.6m on 1 July, you can’t contribute any more in the next year.
- If your income is more than $250,000, the concessional contributions will be taxed at 30% instead of 15%.
- A new Low Income Superannuation Tax offset will replace Low Income superannuation contributions. If your taxable income is $37,000 or less, and you made concessional contributions during the year, you’ll be able to get up to $500 from the government.
Most of these changes are aimed at limiting the amount of money you can put into your superannuation. Why? Because the money you have in superannuation is taxed at the concessional rate of 15%.
If you’re aged over 55, retired and/or drawing a pension from your superannuation
To start a pension, move your super balance into a so-called “pension phase” and enjoy 0% tax on all earnings, you’ll need to be:
- over 55 (if you were born before 1 July 1960) and completely retired
- over 60 and have ceased working at one place of employment
- over 65
If you meet one of these conditions your superannuation benefits will become “unrestricted non-preserved”. That will allow you to start an account based-pension and enjoy that 0% tax on your earnings.
However, this rate will only apply to superannuation balances up to $1.6m. Once the balance reaches $1.6m on 1 July, any additional earnings will remain in the so-called “accumulation” phase, which is taxed at 15%.
Still don’t think you’ll be affected by the government’s changes to superannuation legislation?
Fortunately, you still have a few months to prepare for these changes. Get in touch with us today, and let’s see what strategies we can come up with to protect your hard-earned savings.
¹Concessional contributions are amounts your employer contributes for you. (If you’re self-employed, they’re the amounts you contribute to your superannuation and then claim as a deduction on your tax return.)