by Gemma Kovaloff, Rosenfeld Kant SMSF Division, ASIC Authorised Rep No: 0001250846

In Part 1 of my Superannuation & SMSF series I summarise the key super changes. In Part 2 we delve deeper into the changes to contribution caps, rules and thresholds, the majority of which come into effect on 1 July 2017.  Knowing and understanding the new caps, rules and thresholds will enable you to take the necessary steps to make the most of your retirement income through optimising your contributions and reducing your tax.

Here is Part 2 on contribution caps, thresholds and rules with quick tips to highlight strategies for you to consider.

Superannuation & Self-Managed Superannuation Funds (SMSF) Series

Part 2 of 3: Contribution caps, thresholds & rules

Changes to contributions taking effect from 1 July 2017

Concessional contributions
There’s no good news in the reduction of the concessional contributions cap to $25,000 pa for all eligible members. This will result in an increase in tax payable for those currently making concessional contributions as your taxable income will increase (either as increased salary or lower deductions) and reduce your retirement savings.

Future increases to the concessional cap, however, will be more frequent as changes will be rounded down to the nearest $2,500 instead of to the nearest $5,000 as is currently the case.

 Tips

    • Restructure any salary sacrifice agreements before 1 July 2017 to avoid making excess contributions.

    • If you are using a reserving strategy, ensure your contribution in June 2017 is reduced to $25,000.

    • If your current year’s income is expected to be larger than normal, such as due to capital gain, and your next year’s income is less than $37K, consider a reserving strategy.

Non-concessional contributions
There’s no joy in the changes to the non-concessional cap either. This will be reduced to $100,000 pa and ceases once a member’s super balance reaches $1.6M  in all funds. This will result in a reduced ability to contribute large amounts into your super and your income being taxed outside super at mostly higher tax rates.

The three-year bring-forward rule for eligible taxpayers under 65 years will remain, but with a $300,000 maximum if you trigger the three-year period after 1 July 2017. For those members who trigger their bring-forward period before 1 July 2017, your non-concessional cap will be subject to the transitional arrangements. This will result in the following higher caps, depending on when the period was triggered, as shown in the table below.

 Table 1

 After 1 July 2017, only members with balances under $1.6M will be allowed to make further non-concessional contributions.  Plus, there will be restrictions in the carry-forward amounts for members with balances between $1.4M and $1.6M. These bring-forward restrictions are as follows:

Table 2

Note, if the bring-forward rule is triggered, in subsequent years the total super balance must be under the $1.6M (general transfer cap) to make further contribution.

The only bright spot with these changes is that increases to the non-concessional cap will occur often. The non-concessional cap is three times the concessional cap, and as the concessional cap will be increased in $2,500 increments instead of $5,000, this will result in more regular changes to the non-concessional cap.

Tips

    • There is one more opportunity for eligible members to make a $540K contribution before 30 June 2017

    • If your balance is greater than $1.6M then prior to 30 June 2017 is the last chance to make non-concessional contributions.

    • Splitting concessional contributions with spouse can help to make the most of your super contributions by evening up account balances.

Tax deduction for personal super contributions
Some good news! From 1 July 2017 all eligible taxpayers will be able access the full concessional contribution cap, regardless of employment circumstances.  In the past many members could not access the full cap as their employment income was more than 10% of their assessable income (the ‘10% rule’),  preventing a tax deduction if their employer contributions were less than their cap.

Tips

    • To claim a deduction you need an acknowledgement letter from your fund that a notice of intent to claim a tax deduction has been lodged.

    • If starting a pension with the contribution the notice of intent must be lodged before the pension is commenced.

    • Deductions are limited to assessable income.

Lower threshold for higher super contributions tax
The threshold for Division 293 tax will be reduced from $300K to $250K from 1 July 2017. This means taxpayers whose surchargeable income (that is, taxable income plus fringe benefits, investment and property losses and tax paid by trust) is greater than $250,000 will pay 15% tax on eligible contributions, with $3,750 the maximum tax payable.

Tips

    • If you are near the threshold, consider bringing forward income, such as by selling property.

    • Contributions to defined benefit funds are included.

    • Tax can be paid by your super fund.

Spouse contribution tax offset
Some further good news. The income threshold for claiming a tax offset for spouse contributions has increased to $37,000 for a maximum tax offset with a partial offset up to $40,000. To be entitled to the maximum rebate of $540, a $3,000 spouse contribution must be made. Your spouse must be under 70 years of age and must meet the work test if aged 65 to 69 to be eligible for the tax offset.

Tips

    • Spouse contributions count towards your spouse’s non-concessional cap.

    • When making the contribution, tell your fund it is a spouse contribution.

Low income super tax offset (LISTO)
This offset (or tax refund), previously know as the Low Income Super Contribution (LISC), will remain. It is capped at $500 and will be paid when your ‘adjusted taxable income’ is less than $37,000.

Tips

    • The ATO will automatically calculate and pay this amount.

Changes to Contributions taking effect from 1 July 2018

Catch-up of concessional contribution cap
The ability to carry forward, on a rolling five-year basis, any unused portion of your concession is an innovative measure to help those who have irregular income. The measure will be effective from 1 July 2018 with the 2019/20 financial year the first catch-up opportunity. This is not a bring-forward entitlement and is only available if you have less than $500K in total superannuation balances, measured at 30 June of the prior year. The following table shows an example of how the catch-up will work:

 Table 3

In the 2023/24 financial year (assuming a balance of <$500K at 30 June 2023), an eligible member will be able to make a concessional contribution of $40K, that is $15K from 18/19 plus current year of $25K.

Tips

    • Regular monitoring of your total superannuation balances is required.

    • Work test is required after 65 years so watch the timing.

    • Could be used to offset large capital gains.

 I invite you to contact me if you require assistance to understand how the changes apply in your own circumstances and for advice on what you need to do next. Please email gemma@roskant.com.au or phone (02) 9375 1200.

Superannuation & SMSF Series
1: Summary of key super changes | 2: Contributions caps, thresholds & Rules | 3: Pensions

Gemma Kovaloff is Senior Manager with Rosenfeld Kant SMSF Division, ASIC Authorised Rep No: 0001250846

The information (including taxation) contained within this article is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.