Changes to the superannuation rules will come into play on 1 July this year. This is an opportunity for you to consider your circumstances and if it is right for you, you could make the most of the current rules that have larger contributions caps.
At present, before-tax super contributions are restricted to a maximum of $30,000 annually (or $35,000 per year if you’re aged 50 or over before 1 July 2017). From 1 July, the annual limit on these contributions will be cut to $25,000 regardless of age.
For self-employed workers, who can claim a tax deduction for before-tax super contributions (up to the annual limit), it is worth contributing the maximum that applies before 1 July, cashflow permitting.
If you work as an employee, the bulk of your before-tax super contributions probably come from the bosses’ compulsory contributions set at 9.5% of your normal wage or salary. But you could also be making salary sacrifice super contributions, where part of your pre-tax wage is paid into super rather than receiving it as cash in hand.
If that sounds like you, bear in mind that both your bosses’ contributions and your own salary sacrifice contributions count towards the single upper limit. Do check that you won’t exceed the new threshold of $25,000 that applies from 1 July. This is especially important if you’re due for a pay rise in the new financial year as this will push up your employer’s contributions.
The amount you can add to super from your own wallet – known as after-tax contributions, is also tightening on 1 July.
As of 1 July 2017, the non-concessional contribution cap drops from $180,000 per annum to $100,000 per annum, which means you won’t be able to put as much into your super as you could right now.
Also, the other thing to be aware of is that from the new financial year, if the total balance of your super accumulation and income streams is over $1.6 million, you won’t be able to make any more non-concessional contributions.
If you’re under age 65, you could also bring forward three years’ worth of after-tax super contributions up to a maximum of $540,000. This is significantly higher than the $300,000 limit that will apply from 1 July 2017.
What else you need to know
An important reminder is that if you contribute more than these caps, you may have to pay extra tax. Also, once your funds are invested in super, you need to meet a condition of release such as retirement and reaching preservation age, to get access to the funds. The value of your investment in super can go up and down. Before making extra contributions to your super, make sure you understand and are comfortable with any risks associated with your chosen investment option. It’s important that you speak to an expert about how these changes will impact you before making any financial decisions.
How can you make the most of current superannuation rules?
These are important decisions and you need to consider your own circumstances and assess what the best outcome is for you. We are here to help. Speak to us before the 30 June 2017 deadline to find out how these super changes might affect you.