From 1st July 2017, the biggest changes to super rules in a decade will take effect. There are a range of key decisions and actions that you may need to make before 30th June 2017 in response. There is much material to read online, but the changes are very complex and misunderstanding an area such as how to manage capital gains tax could result in you paying thousands of dollars more than you need to.
Some of the major announcements include:
- introduction of a $1.6 Million transfer balance cap
- changes to concessional and non-concessional contributions limits
- limits to how much can be transferred into pension phase
- extending eligibility to claim deductions for personal contributions
- restricting tax concessions associated with transition-to-retirement pensions.
In short, it is going to be a lot harder to get money into super under the new rules, because the contribution limits will be lower. If you are approaching retirement, understanding what you need to do this financial year could be invaluable. This is particularly the case given tax concessions available in super are still very attractive, particularly compared with personal marginal tax rates as high as 49 per cent if investments are held outside super.
Given the contribution limit cuts, people with substantial savings capacity who are looking to accumulate wealth tax effectively may need to consider other strategies and/or establishing other tax structures ( for example, a family trust) alongside superannuation to help fund their lifestyle goals
Before 1st July, you can contribute up to $540,000 if you are under 65 and can use the three-year bring-forward rule. Otherwise an annual non concessional limit of $180,000 applies.
From 1 July, if you have more than $1.6 million in total super you will not be able to make non-concessional contributions. Otherwise there will be an annual limit of $100,000 with the option of up to $300,000 if you are under 65 and can use the bring-forward provision.
For long-term savers, super fund members approaching 65 and pre-retirees, it is worthwhile getting advice as soon as possible about your capacity to make contributions, to take advantage of this window of opportunity before 30th June.
Under the new rules, at retirement no more than $1.6 million can be held in a tax-free pension. Fortunately, unlimited amounts can still be held in the super accumulation phase, where the maximum tax rate is 15 per cent.
Retirees who do have more than $1.6 million in pensions may also need to speak to an adviser to understand what options they have, to be compliant before 1 July 2017. Considerations may include:
- the best place to house amounts over $1.6 million,
- whether or not monies can be retained within the existing super structure and
- if couples can work together to maximise the amount they hold tax-free
For most people, holding excess funds in the accumulation account will be a preferred option. If you are in this group and can hold an accumulation account within your existing super structure (such as SMSF trustees), you may not need advice but may still benefit from some assistance with the implementation.
Pre-retirees with transition-to-retirement income streams also face a complex decision on whether to keep or stop that arrangement after 1 July 2017. Although the tax rate inside these accounts will increase from that date, there are strategic reasons why keeping this account in place could be worthwhile.
Lastly, if you are thinking of starting an SMSF, you need to make sure you understand the responsibilities of being a trustee and the rules about who can advise you. For instance, after 1 July, accountants can no longer provide help setting up SMSFs unless they are also licensed financial advisers.
Despite the changes, super will still be the best place to save for retirement for the majority of Australians due primarily to the attractive tax concessions and there will still be scope to accumulate large balances in their superannuation funds
From Calibre Private Wealth Advisers’ perspective, the recent announcements have created some clear opportunities for our clients and/or others who may be seeking advice, but time is running out to take whatever potential action is required to take advantage of opportunities and/or avoid adverse outcomes
Please feel free to call Calibre Private Wealth Advisers on ph. (03) 9824 2777 for a confidential initial discussion to help clarify whether you may be impacted in any way.
Any advice in this article is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed by anyone on this information as the basis for making any investment, financial or other decision. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or
needs. We recommend investors obtain financial advice specific to their situation before making any financial, investment or insurance decision. Information in this article is current as at 10th May 2017 and is based on information received in good faith from third party sources, and on our understanding of legislation and Government press releases at the date of publication. While it is believed the information is accurate and reliable, the accuracy and completeness of that information is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither Calibre Private Wealth Advisers or their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this article.
Any general tax information provided in this article is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.