On 23 November 2016, Parliament passed legislation which significantly overhauled the retirement system. The Government hopes the reforms, due to commence on 1 July 2017, will improve the “sustainability, flexibility and integrity” of superannuation. Outlined below are some of the key changes and their potential impact.
Concessional contributions (before-tax)
“Concessional contributions” are the contributions employers make on your behalf or that you salary sacrifice; or in the case of self-employed Australians, personal contributions (that you claim a tax deduction on). They are known as ‘concessional’ because you pay a concessional tax rate on these contributions, rather than your marginal tax rate (which is often higher). The concessional tax rate is 15% if your income is under $250,000, and 30% if your income is over this amount.
From 1 July 2017, the annual maximum cap will be reduced to $25,000. This reduces the current limit by either $5,000 or $10,000 per year (depending on your age.)
Balancing this negative change, a positive change is the ability to “catch-up” on missed concessional contributions for the previous five years, for those with balances of less than $500,000 in super. This is due to come into effect from 1 July 2018. This enhancement to the superannuation system can potentially save clients thousands of dollars in tax and we are developing a number of strategies for our clients to take advantage of this.
Non-concessional contributions (after-tax)
Prior to the reform, working Australians were allowed to contribute up to $180,000 per year in non-concessional (or after-tax) super contributions – or, in special circumstances $540,000, by triggering a 3-year ‘bring forward’ rule. The reforms have reduced the annual cap to $100,000 per year, but leave intact the ability to ‘bring forward’ 3 years’ worth of contributions.
Australia is traditionally a giving nation. Australian’s have a deep-seated code of ‘mate ship’ believing that everyone is entitled to a ‘fair go’. If one of us is in need then we rally together to support those less fortunate (e.g. just recall natural disasters such as bush fires, cyclones or tsunami). Many of us have and still do donate to a charity on a regular basis. Others make ad-hoc donations to various charities when approached (e.g. Red Cross door knock appeal).
You don’t have to be wealthy to be philanthropic. Many people give little or no money but rather volunteer their time and/or expertise in their local community and/or to a charitable organisation. For wealthier Australian’s who make larger donations it is often more effective to channel giving ideas into a planned giving vehicle such as their own Private Ancillary Fund (PAF).
In what is the first of a series of three articles on philanthropy, we provide insights into what is philanthropy, some motivators on why people give, examples of significant philanthropists and explore avenues on how to give. Finally, we provide a link to on-line resources should you wish to read further.
What is Philanthropy?
Philanthropy Australia provides a formal definition as ‘the planned or structured giving of money, time, goods and services or other to improve the well-being of humanity and the community”.
If you are a person who has achieved a stage of financial independence, it is vital that you have an effective Estate Plan to protect you and your family. An Estate Plan is not limited to having a Will. It generally involves more complex decisions around the control of your personal, family and business affairs in the event of death or incapacitation.
If a plan is poorly constructed and communicated, it can lead to damaging disputes. You may have heard about the Rinehart family feud? Or the family who never reconciled when the granddaughter took her grandmother’s antique engagement ring? How about the estate that got whittled away to nothing by legal fees? And the neighbour who passed away without a Will and suddenly a mistress emerged in the aftermath? We’ve all heard the horror stories – and many of us, sadly, have been involved in them.
Poor planning, lack of open communication, high emotions and high stakes when handling an estate are a combustible mix and can lead to family relationships breaking down. None of us want this in theory – but it happens tragically often.
This article focuses on ways to help ensure you avoid such problems by putting in place an effective Estate Plan – by which we mean one that is complete, valid, and well-communicated. Read more