There were too many caps, but now balance has been restored. While caps still have a role to play in the contribution space they will be closely aligned to the total super balance.
The total super balance is only a relevant number on 30 June each year as it dictates our ability to make non-concessional contributions and utilise the bring-forward provisions, make spouse contributions and be eligible for Government Co-contributions. It will also be relevant for those seeking to carry forward unused concessional contributions as the catch up rules take effect from 1 July 2018.
Concessional Contribution Cap (Before Tax)
From 1 July 2017, the concessional contribution cap reduced to $25,000 for everyone from $30,000 for under 50s and $35,000 for over 50s in 2016/2017 year, however you will be able to ‘carry-forward’ any unused concessional contributions cap on a rolling 5 year basis. This means carried forward amounts will expire after 5 years.
Non Concessional Contribution Cap (After Tax)
The after tax contributions cap has reduced from $180,000 to $100,000 per year. You will still be able to bring forward up to three times the cap to make larger one-off contributions, if you are under age 65 and have not reached the new transfer balance cap. The full benefit you bring forward may not apply if your total super balance is close to the transfer balance cap.
Superannuation Balance and Contributions
Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017. This limit will be tied and indexed to the transfer balance cap.
These measures mean that with their annual concessional contributions, Australians will be able to contribute $125,000 each year and, if taking advantage of the non-concessional ‘bring forward’, up to $325,000 in any one year until such time as they reach $1.6 million.
Who will the 2017 super changes affect?
Low income earners
If you are earning less than $40,000 or are self-employed, working part time or don’t have constant income, it can be hard to save for retirement. Changes to super tax offsets and more flexible super contribution arrangements make it easier to add more to your super.
Spouse super contributions
If your spouse earns less than $37,000 p.a. and you make a contribution to their super, you can claim a tax offset equal to 18% of the contributions, up to $540. Even if they earn up to $40,000, you could still be entitled to a partial super tax offset. Other restrictions apply, however this change allows couples to get greater benefits from adding to each other’s super.
Carry your super cap forward
A new ‘carry forward’ rule for before tax (concessional) contributions has been introduced that can help you catch up on before tax contributions later.
If you’ve had time out of the workforce, work part-time or have irregular work patterns and have contributed less than your before tax (concessional) cap, you can rollover the unused portion of your concessional contribution cap for up to 5 years, allowing you to make additional contributions in future years.
High income earners
Higher income earners may be affected by a reduction in both before and after contribution limits. If your combined income and super contributions exceed $250,000 you may have to pay extra tax known as Division 293 tax. The previous threshold for Div. 293 tax was $300,000.
Tax deductions for personal super contribution
Self-employed people and those that earn less than 10% of their income from salary or wages, can claim a tax deduction for any contributions they make to super. The contributions are then treated as ‘before tax (concessional) contributions’.
On 1 July 2017, the 10% rule was removed, making it easier for more people to make use of their concessional contributions cap.
One thing for sure, we are all going to be far more reliant on the ATO to accurately record information which means we will be far more reliant on the superannuation industry accurately reporting information.