26 Oct What the ‘super backflip’ means for you
You might have seen the headlines recently; “Super backflip” (The Australian); “Superannuation changes a low blow to pensioners” (The Mercury); or perhaps even “Superannuation changes ‘big step in right direction’” (The ABC).
So what exactly changed, and what does it mean for you?
First, let’s get the background. The May 2016 Federal Budget proposed a $500,000 lifetime cap on Non-Concessional Contributions to superannuation, taking into account contributions made since July 1, 2007. For many people, this put a halt to making any Non-concessional contributions into their superfund. And to clarify, Non-Concessional Contributions into superfunds don’t necessarily need to be in the form of cash. Assets contributed to the fund, such as farm land or commercial buildings, are also Non-Concessional Contributions.
However, fast-forward to September 15 and the Federal Treasurer changed this position. Treasury announces the new proposals now won’t come into effect until July 1 2017, and the current rules still apply.
What are the current rules, you ask? The current rules allow Non Concessional Contributions of up to $180,000 per year, and anyone under the age of 65 can use what is called the ‘bring forward rule’. The rule allows you to bring forward an additional two years of Non-Concessional contributions in one year, effectively meaning that a total $540,000 of Non-Concessional Contributions can be made into superannuation before 01 July 2017 – essentially scrapping the Budget proposal of a $500,000 lifetime contribution cap.
So, what WILL change from July 1 next year?
The limit of Non-Concessional Contributions will be reduced from $180,000 to $100,000. The Bring Forward rule will still be available, but because of the reduction in the Non-Concessional Contribution Limit this will change from $540,000 to $300,000. And from July 1, 2017, if your total Superannuation Balance is above $1.6million, you will no longer be able to make Non-Concessional Contributions.
All of this means that this financial year may be your last chance to make Non-Concessional Contributions.
Some other things that the September 15 announcement changed for superannuation:
- The Work test is back. The May Budget proposed to take away the work test for those between 65 and 74. This would allow you to make Non-Concessional contributions into your Superfund even if you weren’t employed. From July 1 next year, however, you will now need to be gainfully employed for 40 hours in 30 consecutive days to be allowed to make Non-Concessional Contributions. Also, once you turn 65 you can no longer use the Bring Forward rule
- Contribution Caps will be reduced to $25,000 across the board. Currently, you can make $30,000 of concessional contributions if aged under 50 and $35,000 if aged over 50
- As proposed in the May Budget, an Individual under the age of 75 will be able to claim Personal Super Contributions, up to the concessional contribution cap, from July 1, 2017. At the moment only those who are wholly or substantially self-employed can claim Personal Super Contributions. This will provide an alternative option to salary sacrificing Superannuation.
Understanding your superannuation is crucial to ensure you retire in comfort. If you have any queries on this, or need further information, contact the friendly team at We All Count on (08) 8531 0577 or email@example.com.
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Partner – Murray Bridge