SUPER CHANGES

8 May 2017

MAXIMISING YOUR CONCESSIONAL CONTRIBUTIONS INTO SUPERANNUATION BEFORE 30 JUNE 2017

By Nicola Beswick

As many of you may be aware in last years’ federal budget, the Government announced a number of changes to Superannuation Legislation that dramatically changes the superannuation landscape from 1 July 2017. In the lead up to 30 June, we will be writing a series of articles that outline a number of the changes and important action items to be considered before 1 July 2017.

We encourage you to read and share these articles, and contact us if want to discuss the relevance to you.

This article focuses on maximising your concessional contributions into superannuation.

What are concessional contributions?

Concessional contributions are contributions that are made into superannuation on a pre-tax basis. This includes your employer contributions and any salary sacrifice contributions.

If you are self-employed, or if your total assessable income from employment activities is less than 10%, you can make a personal tax deductable contribution. If you are between the ages of 65 and 74, you must met the work test, which is 40 hours of paid work over a 30 day period.

The concessional contribution limits – now and from 1 July 2017

For individuals aged 49 years and over at 30 June 2016, the concessional contribution cap is currently $35,000 per annum. For individuals aged below 49 years, the concessional contribution cap is $30,000 per annum.

From 1 July 2017 the maximum concessional contribution cap will be reduced to $25,000 per annum, irrespective a person’s age.

Advantage of concessional contributing into super

A primary advantage of making concessional contributions into superannuation is the difference in the amount of taxation that is paid. Every dollar that is concessional contributed into superannuation is taxed at 15%, rather than at your individual marginal tax rate.

The taxation advantages, at each marginal tax rate, are summarised in the table below:

• If you currently aged under 65, you can contribute up to $540,000 this financial year by choosing to bring forward the next two years contribution limits/li>
• If you trigger the bring forward provision at under age 65, you do not need to meet any work test requirements for the period when you may be over age 65

However from 1 July 2017 non-concessional contributions will be limited to $100,000 per person per financial year:

• If you are aged under 65, you can contribute up to $300,000 in the one financial year by choosing to bring forward the next two years contribution limits

Other considerations

• If you have previously triggered the bring forward provision since 1 July 2015, but the full $540,000 amount has not been used, then the bring forward cap available in future financial years will be reduced, as follows:
  • Triggered in 2015/16 – $460,000 transitional cap = $180,000 (15/16) + $180,000 (16/17) + $100,000 (17/18)
  • Triggered in 2016/17 – $380,000 transitional cap = $180,000 (16/17) + $100,000 (17/18) +$100,000 (18/19)

In addition, those who are approaching a total superannuation balance of $1.6 million will have their ability to use the bring forward rule reduced:

• Where a superannuation balance is between $1.4 million and $1.5 million the bring forward rule will be limited to a maximum of $200,000
• Where a superannuation balance is between $1.5 million and $1.6 million the bring forward rule will be limited to a maximum of $100,000
• Finally, under the new superannuation rules, non-concessional contributions cannot be made where an individual’s total superannuation balance is in excess of $1.6 million

These rules are summarised in the table below:

* Currently individuals earning above $300,000 per annum incur an additional 15% tax on concessional contributions. From 1 July 2017 this threshold will decrease to $250,000.

Other things to be considered

If you are thinking of increasing your concessional contributions prior to 30 June 2017, there are a number factors that need to be considered. These include;

• How much has already been concessionally contributed into super? If you are close your contribution limit, then there may not be room for you to increase your contribution rate.
• Can you can still meet your living expenses? Increasing the amount of employment income you salary sacrifice into super, decreases the amount of take home pay you receive. You will therefore have to ensure that you can fund your living expenses, with a reduced level of employment income. You may consider meeting this short fall by using some of your cash savings or (if eligible) taking pension payments from superannuation.
• What your taxable income is. All concessional contributions are taxed at 15%, upon receipt by the superannuation fund. If your income is below $18,200, your marginal tax rate is zero. Therefore paying the 15% tax on concessional contributions into super is unnecessary. Similar to if your income is between $18,200 and $37,000, where your marginal tax rate is 19% (excluding the Medicare Levy). If your income is above $37,000 then there is a significant taxation advantage to making additional concessional into superannuation.
• Access Restrictions. Remember that superannuation is a long term retirement system, and there are restrictions around when superannuation funds can be accessed. Therefore, it is important that you also consider when you may have access to this accumulated pool of money.

Action required

If you believe that you have scope to increase your contributions for the remainder of the Financial Year, then you will need to inform your payroll department ASAP. Given that there are less than two months in the Financial Year left, and as you may need to increase the level of contributions over a number of pay periods, we suggest this is attended to as a matter of urgency.

If you need assistance in understanding how much you have already contributed, and how much more you need to contribute to reach your cap, please contact us.

Nicola Beswick
Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 459008

If you have any questions or comments, please email me at nicola@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution. The information here is of a generic nature, and does not take into account your investment objectives or financial needs. No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

Copyright: © This publication is copyright. Subject to the conditions prescribed under the Copyright Act, no part of it may, in any form, or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced or transmitted without permission. Enquiries should be addressed to GFM Wealth Advisory.