With all of the changes in superannuation legislation that have been proposed over the past 6 months, you may be left wondering what exactly is going on and how this will impact you.
The short answer is that if you have a significant superannuation balance or if you have significant funds outside super and want to be able to use super as vehicle to invest some of these funds for your retirement, you need to understand how you are likely to be impacted.
Firstly, the amount you can invest in a tax free pension account will be capped at $1.6 Million from 1/7/2017. Any amounts currently above this level will need to be moved back into the accumulation phase. Note, this is not the end of the world as income is taxed at 15% and capital gains at an effective rate of 10%, it is just not as good as paying no tax on everything. Depending on your age and the age of your spouse you may be able to re-jig your excess benefits to limit the impact of this. However, this will need to be considered soon given the changes to contribution limits discussed next.
Secondly, the amount you can contribute with after tax money is being reduced from 1/7/2017. You are currently able to contribute up to $180K p.a. in Non-Concessional (NCC or after tax) money, or $540K by utilising the ‘bring forward’ rule which allows you to make 3 years contributions in 1. From next July, these limits are being reduced to $100K p.a. and $300K using the ‘bring forward’ rule. So if you are considering restructuring your affairs to get more money into the low tax superannuation environment, you need to look at this now.
Why might you consider this?
- If you own the premises your business operates from and wish to transfer these into super (or if you wish to purchase new premises), from July 1 you will find this more difficult.
- If your asset position is approaching or exceeding $6 Million and you are looking to sell your business. Transferring assets into super may allow you to access the Small Business Capital Gains Tax exemptions which can significantly reduce the tax payable on the sale of a business, in some cases down to Nil.
- If you have money available to invest, and you are wanting to do so in a more tax effective environment than your own name. While you will not be able to access these funds until you reach your preservation age, if you are at or approaching this age it may make sense to do so.
Thirdly, from 1/7/2017 you will not be able to make further after tax contributions (NCC) to super if you have more than $1.6 Million in your account already. At present, you can contribute as much to super as you like provided you do so within the annual contribution limits. While any money in excess of the $1.6 Million pension caps will continue to have the earnings taxed, the rate of tax is only 15% on income and 10% on capital gains. This may well be significantly less than you are paying on the earnings on this capital already, so you may wish to take advantage of this window of opportunity before it shuts.
Finally, if you are working and your spouse is on a lower income or has a lower superannuation account balance than you, it may be time to reconsider contribution splitting. With the advent of the pension cap of $1.6 Million, equalising your account balances takes on greater importance. One way of achieving this is to transfer your pre-tax (concessional) contributions to your spouse’s account at the conclusion of the financial year. This will help limit the growth on your account, and boost theirs.
If you would like more information on any of these issues, please contact me.
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General Advice Warning:
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Consultum’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.