Superannuation rules are changing (again), so we thought it would be helpful to prepare a summary of the key changes and look at who they might impact.
Superannuation Contribution Terms
Contributions
Payments to your super fund by your employer, yourself or someone else. Can be made as cash or other permitted form (e.g. ASX listed shares transferred to a SMSF).
Concessional Contribution (CC)
Concessional Contributions include before-tax employer contributions, Superannuation Guarantee (SG), salary sacrifice and contributions you make personally where you claimed a tax deduction. CC’s are taxed at 15% on the way into a super fund (30% where income is over $300,00)
Non-Concessional Contribution (NCC)
Non-Concessional Contributions are amounts put into super personally where you have not claimed a tax deduction. These are not taxed on the way into your super fund.
Caps
There is a limit on the amount of money you can contribute to super each year. This is called a cap. There is a CC cap and a NCC cap. These are both changing on 1 July 2017 as detailed below.
Here are some of the changes that will apply from 1 July 2017 and what you can do to maximise your contributions before these changes take effect:
Reduced Concessional Contributions Cap
From the 1 July 2017, the CC cap will reduce to $25,000 per financial year for all individuals regardless of age.
This is a reduction from the current cap which is $30,000 for those under 49 years of age on 30 June 2016 and $35,000 for those aged 49 or over.
Action – If you have sufficient surplus cashflow, now would be a good opportunity to maximise your CCs before 1 July 2017.
Reduced Non-Concessional Contributions Cap
The NCC cap will lower to $100,000 per financial year. A new constraint will also be introduced from 1 July 2017 where individuals with a total super balance of $1.6 million or more will no longer be able to make NCCs.
The ‘Bring Forward’ rule will remain i.e. those under age 65 are able to make NCCs of up to 3-times the NCC cap. Once you have reached a balance greater than $1.6 million in your superfund on 30 June of the previous financial year, the remaining cap amount will be reduced to zero.
| Total Superannuation Balance | Contribution and ‘Bring Forward’ available |
| Less than $1.4m | Access to $300,000 cap (over 3 years) |
| Greater than or equal to $1.4m, and less than $1.5m | Access to $200,000 cap (over 2 years) |
| Greater than or equal to $1.5m, and less than $1.6m | Access to $100,000 cap (over 1 year) |
| Greater than or equal to $1.6m | Nil |
Source: ATO.gov.au
Action – If you plan to make a significant one-off contribution to super act now to use the current bring-forward rule of up to $540,000.
Personal deductible contribution changes
Currently if you want to make a tax-deductible super contribution you have to meet the ‘10% test’ where no more than 10% of your income can come from salary or wages by an employer.
From 1 July 2017, this rule will change where all individuals under the age of 75 will be eligible to make personal contributions for which they can claim a tax deduction up to the concessional contributions cap.
Note that individuals who are aged between 65 and 75 will still need to meet the work test (40 hours in a 30-day period of gainful employment) to be eligible to contribute.
Catch-up Concessional Contributions
From 1 July 2018, individuals with superannuation balances of less than $500,000 will be able to access their unused concessional contributions cap space to make additional concessional contributions on a rolling basis for 5 years.
The unused cap amounts can start to be carried forward from 1 July 2018, that is, from the start of the 2018-19 financial year, which means the 2019-20 year is the first financial year that individuals can take advantage of unused cap amounts from previous financial years.
Action – couples might like to ‘split’ super contributions to help keep each account under the $500,000 limit.
Changes to TTR income streams
A Transition to Retirement pension or TTR pension is a way to ease into retirement by continuing to work whilst also drawing a pension from your super fund to supplement your employment income.
From 1 July 2017, super fund earnings supporting a TRR pension will no longer be exempt from tax, and will be taxed at 15%.
This change will apply to all existing as well as new TTR income streams regardless of the date of commencement.
Action – if you’re over 60 years of age and no longer intend to work more than 10 hours per week consider commencing an Account Based Pension (ABP) as earnings remain tax-free on ABPs.
Introducing Transfer Balance Cap
This is probably the most complex and controversial change to super in recent times. From 1 July 2017, the total amount that an individual can transfer into a pension will be capped at $1.6 million.
If your account will exceed $1.6 million on 1 July 2017, then you will need to either:
- Transfer the excess amount to the accumulation phase where future earnings will be taxable from July, or;
- Withdraw the excess amount from your super fund.
Action – SMSFs will be allowed to reset the cost base for assets reallocated to the accumulation phase. This is designed to ensure all assets held as at 1 July 2017 don’t suddenly have a potential tax liability attached to them. Advice is needed to determine which assets should be reallocated and which assets are best suited to the pension vs. accumulation account.
‘High Income Earner’ tax
Division 293 tax was introduced on 1 July 2012 to reduce the tax concession on CCs for individuals with income greater than $300,000 a year.
From 1 July 2017, this threshold will reduce to $250,000.
If you would like to find out more about SMSFs, Superannuation Contributions or further financial advice, please feel free to give us a call on 02 9913 9995. We are located in Narrabeen on the Northern Beaches of Sydney.
Disclaimer: This publication has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions.
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