Do you know what it is like when you get a tune in your head and you just can’t shift it?
Well, it has just happened to me. The words of John Lennon and Yoko Ono’s ‘Happy Xmas (War is Over)’ are in a continuous loop in my mind.
‘Another year over and a new one just begun’
Now, I know this song is something we think of at Christmas time, but here in Australia, we have just seen one financial year draw to a close and a brand new year start.
What a year the past one has been, and the new one promises to deliver.
On 1 July we saw the most significant changes to superannuation in the past decade come into force.
While there was a flurry of activity in the lead up to 30 June as people took last minute steps to take advantage of the opportunities – particularly in relation to maximising superannuation contributions under the previous more generous limits, it is now time to step back, take stock, and think about what needs to happen as we journey into 2017-18.
So, here is my check list:
- Concessional contributions
Concessional contributions are those made by an employer, or by individuals who are seeking to claim a tax deduction for their personal contributions. The annual limit is now $25,000.
The good news is the previous restrictions that applied to people wanting to claim a tax deduction for their personal contributions has been removed. A personal tax deduction can now be made for contributions made by anyone under the age of 65, or those between 65 and 74 who meet a work test.
With the reduction in the concessional contribution cap to $25,000, readers who are making regular contributions to super, whether by direct debit or by a salary sacrifice arrangement, need to review their level of contributions to ensure they don’t exceed the new $25,000 limit.
- Non-concessional contributions
Non-concessional contributions are personal contributions that are generally made from after-tax income.
Individuals with more than $1.6m in super are now unable to make new non-concessional contributions.
For those who can contribute, the annual limit has been reduced from $180,000 to $100,000. For many people, the ability to bring forward up to three years contributions, and contribute up to $300,000, is still available.
- Spouse superannuation tax offset
Where an individual makes non-concessional contributions on behalf of a low income earning spouse, the contributor may be eligible to receive a tax offset of up to $540.
From 1 July 2017, access to the tax offset has been expanded considerably by increasing the income a low income earning spouse may receive. The income threshold has increased from $13,800 to $40,000.
- Retirement phase pensions
The maximum a person may now have in a pension account is $1.6m. This will present some practical difficulties for those fortunate enough to have more than $1.6m in super, however, there are a number of opportunities available to manage this.
For those readers who have more than $1.6m in super (or are likely to by the time they retire), a financial planner can assist with working through the details and identifying the opportunities.
- Spouse contribution splitting
The idea of splitting superannuation benefits between partners makes increasing sense now that there is a limit on how much can be held in the pension phase of super.
Each year, a person is able to split up to 85% of their concessional contributions with their spouse, subject to meeting certain conditions.
Now is a good time to be reviewing the concessional contributions made during 2016-17 to see if splitting those contributions is appropriate.
Equalising super between partners will become an increasingly more relevant strategy.
- Transition to retirement
Changes to the taxation of super fund earnings that underlie transition to retirement pensions came into effect on 1 July.
Some commentators are suggesting that transition to retirement is no longer a strategy that delivers any value. Our own research suggests that in many instances, the transition to retirement remains a valid strategy even though the benefits might not be as great as they have been in the past.
Once again, appropriate advice is vital.
Welcome to a brand new year! Despite what some commentators may say, superannuation remains a valuable retirement savings vehicle.
Feel free to raise any questions you have in the ‘Comments’ below.3