During the announcement of this year’s budget, several proposed changes to superannuation legislation were announced. This could provide a great opportunity for anyone who may be impacted by the changes to take appropriate action.
Various considerations have been noted below that you may need to make when the time comes to making super contributions as well as a few things you can do right away.
Assist your Spouse with Growing their Super
If your spouse earns less than you or has been out of the working world for a while, you might want to consider splitting your concessional superannuation contributions with them so that they can top up their balance as well. If both parties of a couple have a relatively equal super balance instead of only one of them having a large balance, it can provide a more effective strategy with the introduction of the proposed limit on asset transfers from super accumulation phase to pension phase at just $1.6 million per person.
If your partner is earning $10,800 or less, you could be eligible for the tax offset for super contributions you make on their behalf. As of July 1, 2017, the threshold was increased to $37,000.
Take Advantage of your Concessional Contributions
One of the changes mentioned in the budget involved proposing to decrease the concessional (pre-tax) contribution limit to $25,000 per year for everyone, regardless of their age. If you are earning between $250,000 and $300,000 per year, you will most likely be affected by the increase in the level of super contributions tax from 15% to 30% that took effect on July 1, 2017 (previously, the 30% tax only applied from the $300,000 per year mark).
If you weren’t able to take advantage of your pre-tax contributions up to July 1, 2017, you would most likely still have benefitted from the introduction of the catch-up concessional contributions that started in July last year. With these changes, if you had a super account balance of less than $500,000, you would have been able to carry forward an unused portion of the concessional cap every year on a rolling basis for up to five years. This would have enabled anyone who had to take time away from their careers and those with irregular working patterns to somewhat catch up on their superannuation contributions.
Consider Changing to a Retirement Pension
It was also announced during the budget that the favourable tax treatment of Transition to Retirement Pensions would not be reduced. If you had a current Transition to Retirement Pension, you would not have had to make any changes to it until June 2017.
Review your Non-concessional Contributions
The budget proposed a limit for non-concessional contributions up to a lifetime cap of $500,000, which was put into effect on 3 May 2016, and it includes all non-concessional contributions that had been made from July 1, 2007.
In the event that you had been making after tax contributions to your super account, you would have had to see if you had exceeded the $500,000 limit. If you had met or exceeded that limit, you would not have been able to make any further non-concessional contributions at the time.
It is recommended that you try to take advantage of these contributions, as they will go a long way in helping you and your spouse to build up wealth in the concessionally taxed superannuation environment – which will be much appreciated during your retirement years. It is also recommended that you work closely with a reputable financial advisor to ensure that you do not exceed any limits for contributions.
The above-mentioned commentary was based on assuming that these Budget proposals would be brought into legislation. However, changes may have been made before anything was finalised. Some budgetary changes may have been amended, adjusted or even scrapped without being approved. Regardless of whether all of these budget changes came into being or not, investing in your super account remains by far the most tax effective way to invest your money for retirement.
It is crucial to implement careful planning and consideration into your personal financial situation, especially where your superannuation contributions and accounts are concerned. If you require assistance with anything pertaining ot your super account or contributions, contact us today.
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