July 1, 2017 is the starting point for a range of new rules in relation to superannuation contributions. These changes have some far-reaching effects and may create opportunities for some and hazards for others, so it pays to be on top of what they are. Here is a handy summary to the key issues, which you may want to explore further with a professional financial planner.
Deductible contributions for employees
After 1 July 2017, employees under the age of 75 will be allowed to claim tax deductions for voluntary personal super contributions. Prior to this, employees generally needed to enter into a salary sacrifice arrangement with their employer in order to obtain any income tax concessions on voluntary contributions.
This new rule is also of benefit to those who work both as a part time employee and a self-employed person. Up until July 2017 the rule for such people was that their income from employment had to be less than 10% of their total income in order for them to be able to claim a tax deduction on their voluntary contributions. This 10% rule will now be abolished, allowing much more freedom to make deductible contributions.
It is important to bear in mind, however, that the new rules also see a reduction in the concessional contributions cap to $25,000. In other words you can only claim a deduction on contributions of up to $25,000 per year. Any super guarantee contributions your employer is making for you will also be included within that $25,000 cap amount.
Concessional contribution catch-up provision
While the contribution cap has been tightened, there is another change on the horizon that may help alleviate the situation for some. From 1 July 2018 a catch-up provision will be introduced that will enable any unused portions of the concessional cap to be carried forward for up to 5 years. While this will effectively allow some to take greater advantage of the benefits of concessional contributions, this provision will only be available to those with a total super balance of less than $500,000.
Changes to non-concessional contribution cap
If an individual makes contributions that are not claimed as tax deductions (known as non-concessional contributions), there are also rule changes to these caps that you need to be aware of. From 1 July 2017, this cap will drop to $100,000 (with flexibility to bring forward the following two years’ cap amounts, so that you can actually make up to $300,000 in non-concessional contributions). As a further restriction, however, if your total superannuation balance is more than $1.6 million as at 30 June in the previous financial year you will no longer be eligible to make non-concessional contributions in the following financial year.
For those with balances of between $1.4 million and $1.6 million on 30 June 2017 there are some further complexities involved in the new rules, but it would be best to seek advice on your individual situation in order to see how you may be affected.
Proposed work test rule changes for over 65s have been scrapped
The government had originally intended to get rid of the work test rules that apply to people over the age of 65 (up to age 74) who want to make contributions to their super. This move has now been scrapped so that the work test will still apply after July 2017.
The work test applies to over 65s who wish to make super contributions.In order to be eligible to make them, the person must work 40 hours in a 30-day period in the financial year in which they plan to make the contribution.
Seek advice if you are unsure
Some of these changes are quite dramatic and may impact the planning for many thousands of Australians. It is important to consult your financial planner and have your situation managed closely to avoid being caught out. As a valued WYZA reader, you're entitled to a complimentary initial appointment with a Bridges financial planner valued at $330.
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