Do your super arrangements need to be reviewed?

The 1 July changes to super are just days away and you may be caught out if you don’t at least ask yourself whether you need to review your current arrangements.

$1.6 million transfer balance cap
The Government estimates that less than one per cent of the population will be affected by this measure. It’s likely that, if you’re one of those lucky enough to have such a balance in your retirement fund, you’ll also have access to the necessary financial advice needed to minimise the effect on any cap. However, it’s always worth asking your financial adviser or accountant about the best way to restructure your finances. 

End of tax exemption on transition to retirement pensions
Transition to retirement (TTR) pensions will now attract 15 per cent tax on earnings, so it’s worthwhile checking if this is still the best arrangement for you. While the removal of the tax exemption may make TTRs less attractive to some, they could still be the right vehicle if you’re looking to work less but maintain your income level.

Reduction of concessional contribution caps
This is likely to be the measure that catches out most people. From 1 July, concessional contributions will be capped at $25,000 for everyone. Those who salary sacrifice should check the total amount being paid into super, as the cap includes the employer superannuation guarantee of 9.5 per cent and any administration fees or insurance premiums an employer pays on your behalf.

Also, note that the concessional contribution counts when it hits your super fund, not when it’s sent. You may be too late if you’re looking to take advantage of this financial year’s higher contribution cap.

If you exceed the contribution limits, you can withdraw the extra funds, however, they will be taxed at your marginal tax rate, plus interest.

Reduction of non-concessional contributions
One way of giving your super a boost, especially as you approach retirement, is to make a large non-concessional contribution. This is often done by those who have proceeds from a property sale or have received a windfall, such as an inheritance. Indeed, the bring forward rule, which allows you to make three years worth of contributions in any one financial year, can see your super balance jump considerably. The contribution cap will be reduced from $180,000 to $100,000 a year, but it’s the additional rule that may catch people out.  From 1 July you can only make non-concessional contributions if your super balance is less than $1.6 million.

It’s not all bad news in super – there are two measures that can actually boost your super.

Increased income threshold for spouse contribution tax offset
If you are currently unable to make contributions for your low-income earning spouse due to their actual income, an increase in the applicable threshold. This threshold will be increased from $13,800 to $40,000, meaning the tax offset of up to $540 will be more accessible.

Increased access to tax-deductible contributions
For those who have continued to work long past retirement age, tax-deductible contributions will be available to individuals under the age of 75, including those who are self-employed or employed and don’t meet the 10 per cent income test. The work test still applies for those over 65 years of age.

Written by Debbie McTaggart

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