Profile Blog - Category ‘Superannuation’

Superannuation – outlining the changes

By Scott Ungaro, Financial Planner

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.

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