What’s the new story with super?


Just like clockwork, every May the government proposes changes in its federal budget – and then tries to sell it to us. This year, super and tax got the most attention. Given super affects just about all of us, let’s walk through, in language free from government spin, what these changes mean.

Trimming before-tax contributions

A concessional cap applies to contributions made by your employer (and includes any salary you sacrifice). The government wants to reduce this cap from $30,000 (or $35,000 if you’re over the age of 49) to $25,000 per year for everyone, regardless of age. You can top up your super with more, but you may pay more tax.

A reduced cap means reduced contributions, possibly taking longer to get all that you want and need into super. To help with that, the government have proposed a few attractive offerings like the contribution catch-up and tax deductions for personal contributions.

Playing contribution catch-up

If you have a super fund account balance of less than $500,000 (that’s about 8.1 million Australians), the new rules would let you accrue unused concessional cap amounts for up to five years, starting from 1 July 2017. Anything you don’t use expires after five years.

Let’s use an example. Kate is 36 years old, earns $70,000 per year and her super balance is $150,000.

In 2017-18 her total concessional contributions are $10,000. As she didn’t use up the $25,000 cap she can carry forward the balance of $15,000 for five years.

In 2018-19 she could have $40,000 worth of concessional contributions made on her behalf using before tax salary ($25,000 plus the un-used balance of $15,000). With plans to start a family, Kate thinks it’s a good opportunity to top up her super since it might be a while before she can do it again.

More high earners will pay additional tax on contributions

The high earners threshold will reduce from $300,000 to $250,000 per year from 1 July 2017. If you’re one of them, the additional 15% tax makes the effective tax rate on your concessional contributions 30% (double the 15% paid by most employees).

....and for low income earners, a helping hand

A new tax offset replaces the low income super contribution from 1 July 2017. It’ll provide a tax offset of up to $500 paid directly into super for concessional contributions made on your behalf - if your total annual income doesn’t exceed $37,000.

Contributing yourself

New lifetime limits for popping extra savings into super

When you make a personal contribution to super using after tax dollars or savings, and don’t claim a tax deduction, it gets counted against the non-concessional contribution cap.

The government want to replace the current cap of $180,000 per person, per year ($540,000 if you’re under 65 and using the three year rule) with a lifetime cap of $500,000.

If introduced, the lifetime cap would take into account all your non-concessional contributions made on or after 1 July 2007. If you’ve already exceeded the lifetime cap, you won’t be penalised or asked to remove the excess. However, future contributions would be classed as excess so consider investing it outside super – especially if you can’t access super for a long time (age 65 for example) and have short term goals you’d like to save for.

Under 75? Keep topping up super, even if you're not working

If you’re aged 65 to 74 you must work a certain number of hours to make super contributions. From 1 July 2017, the government plan to remove this, making it easier for you to contribute and possibly gain a tax deduction.

If you’ve got a non-working spouse who’s age 69 or less, it’ll be possible to make contributions for them – letting you make use of two lifetime limits and possibly earn a spouse contribution offset.

Tax deductions for personal contributions

Proposed from 1 July 2017, anyone up to age 75 will be able to claim an income tax deduction for personal super contributions – whether they work or not, up to the $25,000 concessional cap. If you’re working, leave room for employer contributions or you'll exceed the cap quickly and may pay more tax.

Tax back for helping your spouse.....

Making a contribution to your spouse’s super could get you a maximum tax offset of $540 – if certain rules are met. The government plan to improve access to the offset by raising the lower income threshold for the receiving spouse from $10,800 to $37,000. It’ll still reduce like it does now, probably cutting out your chances of getting the offset once your spouse’s income exceeds $40,000 per year.

Reducing tax free income from super pensions

You may need to re-think your super pension

When you start a super pension, earnings on assets used to support it are tax free. The proposed budget changes mean this won’t apply to transition to retirement income streams from 1 July 2017.

This means the earnings will be taxed at a maximum rate of 15%, regardless of when you started the pension. Plus, you won’t be able to choose for payments to be taxed as lump sums to gain a tax advantage.

The $1.6 million dollar super pension

From 1 July 2017, the government propose to limit the amount you can move into a tax-free super pension account to $1.6 million. Any growth you earn won’t add to the limit.

If you’ve already started a super pension, and the account balance is greater than $1.6 million, the excess can be:

  • Cashed out (usually tax free if age 60 or over) and/or,
  • Moved back into a super fund account (where earnings are taxed at a maximum rate of 15%).

The proposals apply regardless of when you started the super pension. Exceed the limit and additional tax may apply.

Remember: these proposals may change before they become law. In the meantime, it’s a good idea to read more about how the changes affect you personally, and seek advice if you’re unsure. Don’t run the risk of making a financial misstep with your retirement savings, as it may be hard to fix.

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