From 1 July 2017 onwards, new superannuation measures will make it easier for some people to save for retirement, particularly those who’ve struggled to contribute in the past. There’s a lot of doom and gloom around about the changes, but we look at the positives – and the opportunities.
Tax-deductibility of super contributions
Under existing rules, tax deductions for personal super contributions are limited to those earning less than 10% of their income from waged employment, which in practice means people who are self-employed or who receive most of their income from investments.
From 1 July 2017, the 10 per cent restriction will be lifted and anybody will be eligible to claim the deduction.
This presents a great opportunity, particularly for part-timers, casuals and those between jobs, who have traditionally struggled to contribute to super.
Case study – Fran
Fran has had a number of casual and part-time jobs and is expecting a baby in December 2017, at which point she’ll stop working for the rest of the financial year. Some of her casual jobs are for one or two days per week which means she earns less than the monthly income threshold for superannuation guarantee payments.
From 1 July 2017, Fran will be able to make tax-deductible super contributions up to the concessional contributions cap. This will provide her with a tax incentive to top up her superannuation.
Depending on her earnings, she may also consider making non-deductible super contributions to qualify for the government’s co-contribution. The maximum co-contribution payable is $500 based on a personal contribution of $1000.
Another new measure, effective 1 July 2018, is the ability to carry forward unused concessional contributions for up to five years.
If Fran is unable to make contributions in a year that she does not work, she can carry forward the unused amount into a subsequent year (FY 2019/20 and beyond), provided her total super balance is less than $500,000.
For example, if Fran’s unused concessional contribution entitlement is $20,000 in 2018/19, she can carry it forward to make $45,000 worth of concessional contributions in 2019/20 ($20,000 carried forward plus $25,000 pertaining to 2019/20).
The new measures present a good opportunity for SMSF trustees and their advisers to consider, as well as anyone saving for their retirement.
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