Kate O'BrienSuper Changes #1: New Cap on Tax-Free Super

From 1 July 2017, the Government will introduce a $1.6 million cap on the total amount of superannuation that can be transferred into a tax-free retirement account.

Superannuation Balance Greater than $1.6 million?

If you are planning to retire after July 2017 and you have a superannuation balance greater than $1.6 million you will be able to transfer a maximum of $1.6 million into a tax-free retirement phase account.

For example, Annette is aged 63 and retires on 1 October 2017. Her superannuation balance is $1.9 million. Annette can transfer $1.6 million into a tax-free retirement income account.

What to Do With the Excess?

There are a couple of options for the remaining $300,000;

  • leave it in an accumulation account where earnings will be taxed at 15%,
  • remove the excess amount from superannuation,
  • contribute the excess to a spouse’s superannuation account, subject to eligibility and the contribution caps.

Retired Before July 2017

If you are already retired and the balance of your retirement phase account is greater than $1.6 million you will have until July 2017 to  reduce your balance through one of the above options.

Super Changes #2: The Clock is Ticking to Maximise Non-Concessional Contributions

From 1 July 2017, the non-concessional contribution (NCC) cap drops from $180,000 per annum to $100,000 per annum. This means that after July you will not be able to put as much into super as you can now.

The 3-Year Bring-Forward Limit

Individuals under 65 are able to trigger the 3-year bring-forward rule for NCCs. This means you can make up to $540,000 (3 x the annual cap) of NCCs over a three-year period. For example, if you have made no NCCs in the prior 2 years, you can contribute up to $540,000 in year 3.

After 1 July 2017, whilst the 3-year bring-forward rule still applies, the 3-year cap drops from $540,000 to $300,000.

Given the reduction to the NCC limit, if you have assets available outside superannuation, the next few months provide an opportunity to maximise your non-concessional contributions to superannuation.

$1.6 Million Superannuation Cap

After 1 July, once your superannuation balance reaches $1.6 million you will no longer be able to make non-concessional contributions to superannuation. However, if you are not yet retired, you can build your super balance greater than $1.6 million before 1 July. This may create an opportunity to equalize superannuation balances between spouses.

Seek Advice ASAP

These changes to the transfer balance limit and NCC cap are significant and if you are affected there are important decisions to be made before July. We urge you to seek advice from a financial advisor to ensure you’re taking appropriate action to maximise superannuation. Please call us on (02) 9908 9888 for more information or to discuss your situation specifically.

Kate is an Authorised Representative of Hillross Financial Services Limited (AR Number 1007833).