2017 superannuation changesWHAT IT MEANS FOR YOUThis year, major reforms that impact how you contribute to super will take effect. In this paper, nabtrade's Director, SMSF & Investor Behaviour, Gemma Dale, explains the changes, what they mean for you and the potential opportunities for you to maximise your retirement savings before and after 30 June 2017.

Legislation to implement the Government's superannuation reforms passed the Parliament on 23 November 2016. The superannuation reform package was announced in the 2016-17 Budget and amended following consultation.

In this paper, I outline the key changes that superannuants and self-managed superannuation (SMSF) trustees should be aware of and what it could mean for their future goals.

Concessional contributions

Concessional contributions to superannuation are those for which the contributor claims a tax deduction. For employees, these usually take the form of Superannuation Guarantee payments (currently a legislated 9.5% of your salary) or salary sacrifice. For those who are self-employed, these are the super contributions for which you claim an explicit amount in your annual tax return.

Currently, those who are over 50 at any point during the financial year can contribute up to $35,000 per annum in pre-tax contributions; those who are under 50 have a limit of $30,000 pa. This limit will reduce to $25,000 per annum from 1 July 2017, irrespective of age. (Those who are over 65 years of age are required to meet a work test in order to be able to contribute to superannuation; those who are over 75 years of age are only able to receive mandated employer contributions).

Easier deductions for employees

One positive change from 1 July 2017 is that employees will no longer be required to meet the 10% test in order to claim a deduction for personal contributions to super. Currently, unless 90% or more of your income has come from eligible self-employment (ie non-employer) sources, you generally can’t claim a deduction for personal contributions to super. The only meaningful way to increase your tax deductible contributions is to ‘salary sacrifice’ through your employer. As not all employers offer salary sacrifice, and a small number used such arrangements to reduce their Superannuation Guarantee obligations, this was sometimes difficult or unhelpful.

Salary sacrifice arrangements must also be made on a prospective basis, so windfalls and other unexpected lump sums could not be accommodated. (It is possible to elect to have a bonus or other expected lump sum ‘salary sacrificed’ to super in advance, however these need to be managed against the caps). The 10% requirement will be abolished on 1 July 2017, allowing employees to claim a tax deduction for lump sum and other personal contributions to super.

Higher contributions tax for more high income earners

Currently, an additional contributions tax of 15% is applied for those who are earning over $300,000, so their total contributions tax is actually 30%.

The threshold for which this extra 15% will be applied will be $250,000 from 1 July 2017. This makes superannuation contributions less attractive for this group, but still compares favourably with their marginal tax rate of 45% plus Medicare levy of 2% and any additional amounts (such as the current Temporary Budget Repair Levy of 2%).

Catch up provisions

A new provision, designed to assist those with broken work histories or irregular earnings patterns, allows those who have not used their concessional cap in any given year to carry forward the unused amount for up to five years. This amount will be available on a rolling five year basis from 1 July 2018, and only applies to those with less than $500,000 in superannuation. It is important to note that as these are concessional contributions, the contributor will need to have sufficient

2017 superannuation changes

Please note: Any advice and information in this publication is of a general nature only. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements that arises, or could arise, under taxation law, and we recommend that you consult a registered tax agent. nabtrade is not a registered tax agent.

Concessionalcontributions

Under 50

Over 50 during the year

2016-17

$30k

$35k

From 1 July 2017

$25k

$25k

assessable income to make claiming a deduction of more than $25,000 worthwhile.

Tips for concessional contributions:

1. Ensure you utilise your full concessional contribution cap before 1 July 2017If you are using concessional contributions to build your superannuation balance and have sufficient excess cash flow and assessable income, consider utilising your full concessional cap in the current financial year, as this will reduce on 1 July. For those over 50, this means an extra $10,000 in super on a pre-tax basis; for those under 50, it’s an extra $5,000 working for your retirement. For those earning between $250,000 and $300,000 in adjusted taxable income, contributing before 30 June could also save you 15% in additional contributions tax.

2. Talk to your employer about increasing your salary sacrifice amount for 2016-17If you plan to make additional concessional contributions this year, and you’re an employee, make sure you speak to your employer as soon as possible. As salary sacrifice contributions can only be made on a prospective basis, you may need to increase these over the remaining 5 months of the current financial year.

3. Talk to your employer about salary sacrificing any bonus you may receiveIf you are likely to receive a bonus before 30 June and would like to salary sacrifice this to superannuation, talk to your employer about putting a prospective salary sacrifice arrangement in place. (Just remember, if it is paid after 30 June, the new rules will apply).

4. Plan your self-employed contributions before 1 JulyFor those who are self-employed or not receiving more than 10% of their income from an employer, consider making personal deductible contributions prior to 1 July. Your accountant or financial planner will be able to assist you in determining the best contribution amount.

Non-concessional Contributions

Currently, an individual can make after tax, or ‘non-concessional’ contributions of up to $180,000 per annum, or utilise the three year bring-forward amount of $540,000, which allows you to make three years of contributions on a prospective basis. On 1 July this year, this is going to be reduced to a single year cap of $100,000, and a three year cap of $300,000. Previously the non-concessional cap was set at six times the concessional cap; that has been reduced to four times.

For the first time, there will be a balance limit that determines whether you can make a non-concessional contribution to super; this will be the general transfer balance cap of $1.6million (which is subject to indexation, as are the contribution caps themselves). Anyone with total superannuation balances of more than $1.6m will not be able to make non-concessional contributions; in addition, those who are close to the cap and wish to make contributions may be subject to lower contribution caps than those with smaller balances, to prevent them from exceeding the $1.6m limit.

Those who have used some but not all of their three year bring-forward amount (currently $540,000), will not be able to use the full remainder from 1 July 2017; they may be eligible for a transitional cap or lose any remainder entirely.

Spouse contributions

Currently, those who are earning under $13,800pa may receive a non-concessional contribution from their spouse, which allows the spouse to receive a rebate of up to $540 if the contribution is $3,000 or more. From 1 July 2017, the contribution recipient will be able to earn up to $40,000 in that year without affecting their spouse’s eligibility for the rebate.

Small business CGT cap

This cap allows for special proceeds from the sale of a small business to be contributed to super under a separate cap (ie they are not counted against the non-concessional cap of $180,000, although the contributions are non-concessional for tax purposes). This cap, which is currently $1,410,000, has not changed, however it is important to be aware that contributions made under this cap will count towards the $1.6m pension transfer cap – which makes them potentially less attractive than they used to be. Each of the caps is per person, however, so you may be able to contribute to both your account and your spouse’s and minimise the impact of the caps in that way.

Tips for non-concessional contributions caps:

1. Maximise your cap in 2016-17If you have excess cash and wish to invest your funds in super, ensure you make your contributions prior to 1 July 2017. Super remains a tax effective way to invest, even if you are likely to exceed the $1.6m general transfer balance cap, as funds in the accumulation phase are still subject to a maximum tax rate of 15% on earnings (reduced by deductions and rebates such as franking credits). Those who have more than $1.6m in super will be prevented from making further non-concessional contributions unless that balance is reduced, and should therefore consider making contributions prior to the new rules coming into effect.

2. Utilise your three-year bring forward in fullAs the three-year bring forward amount will reduce substantially on 1 July, and be lost for those who have not used it in prior years, those with the means should consider using it in the current year. (It should be noted that those who are 66 or older at any time in the current year are unable to use the bring forward provisions, and are subject to the current annual cap of $180,000).

2017 superannuation changes

Balanceunder $1.6m

Balanceover $1.6m

Annual

$180k

$180k

Three year

$540k

$540k

Annual

$100k

Nil

Three year

$300k

Nil

2016-17 From 1 July 2017

2017 superannuation changes

Disclaimer: The nabtrade service (nabtrade) is the information, trading and settlement service provided by WealthHub Securities Limited ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). WealthHub Securities Limited does not accept any responsibility for the information contained in this infographic, which is intended to be of a general nature. Accordingly, reliance should not be placed by anyone on this infographic, as the basis for making any investment, financial or other decision. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial, investment or insurance decision. NAB and WealthHub Securities are not a registered tax agents or registered tax (financial) advisers. If you intend to rely on any general tax information contained in this publication to satisfy liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, you should seek professional advice from a registered tax agent or registered tax (financial) adviser.

3. Balance your super with your spouseIf your super balance is likely to exceed the general transfer balance cap of $1.6m, and your spouse has a balance that is lower than this amount, it may be worth considering withdrawing some of your super (subject to meeting a condition of release, of course) and contributing it to your spouse’s account (subject to their caps).

4. Make spouse contributions from 1 July 2017If you have previously been ineligible to receive the spouse contribution rebate due to your spouse’s income, consider re-visiting this after 1 July 2017. A $540 rebate for a $3,000 contribution represents an 18% after-tax return on your contribution, with no risk!

While the new superannuation legislation has been enacted, given the broad-ranging and complex natureof these changes, please seek professional advice regarding your personal circumstances before acting on these suggestions.