Understanding changes to superannuation

From 1 July 2017, a range of changes took effect in the Australian superannuation system. Some of the changes may affect you right now – particularly if you salary sacrifice to grow your super.

Superannuation is your savings account for the future – your nest egg for retirement. It seems a long way into the future for most people, but the decisions you make now shape your future financial outlook so we've compiled a list of the superannuation changes which could affect you. 

Salary sacrifice changes

Some employers allow you to make a pre-tax salary contribution (a concessional contribution) – usually known as salary sacrifice.

Before 1 July: Depending on circumstances, concessional contributions were capped at between $30,000-$35,000.

From 1 July: A $25,000 cap on salary sacrificed contributions applies to everyone. You can bundle up any unused annual caps on a rolling 5-year basis. For example, if you don't contribute for 3 years, you could add up to $75,000 in the one year.

Voluntary contributions after tax

One of the biggest changes is the cap on after-tax contributions. If you choose to add extra money into your super fund (non-concessional contributions), generally, these voluntary contributions are taxed at a discounted rate (15%). They're not taxed at all once you retire and access your super.

Before 1 July: For under 65s, the annual cap of voluntary contributions was $180,000. You could choose to bundle several years of the cap together, and make a contribution of $540,000 in one year.

From 1 July: The cap is reduced to $100,000 per year. You can still bring 3 years forward, and make a contribution of $300,000 in one year.

Encouraging spousal contributions

If you want to make contributions to your spouse’s super fund, you’ll get a better deal on topping up their account.

Before 1 July: If your spouse earns less than $13,800 and you make a super contribution for them, you can claim a tax offset (deduction) of 18% of your contribution, up to $540 per year.

From 1 July: The income threshold for how much your spouse can earn rises from $13,800 to $37,000.

From LISC to LISTO for low-income earners

Before 1 July: Under the low income super contribution (LISC), eligible taxpayers earning up to $37,000 could receive a super contribution up to $500 from the Government (equal to 15% of before tax super contributions).

From 1 July: The scheme is being replaced with the low-income superannuation tax offset (LISTO) scheme. The rules are basically the same, the name has changed.

Limits on tax-free pension accounts

Your super funds are generally split into different sections – the accumulation account (taxed at 15%), and the tax-free pension account.

Before 1 July: You could have as much money as you like in your tax-free pension phase.

From 1 July: A $1.6 million cap will apply to how much you can have in the tax-free pension phase of your superannuation account.

The changes won’t mean you’ll have to withdraw any money from your superannuation account if you’re over the limit; but you may have to move some money into the accumulation account of your super and you may pay higher tax.

Higher income earners

Before 1 July: Your combined income and super contributions could be up to $300,000 before you had to pay an extra tax.

From 1 July: The threshold reduces to $250,000, so keep an eye on your income and contributions to avoid extra tax payments.Professional help from a financial advisor

There’s a lot to get your head around with the updated superannuation changes. If you’re not sure what it means for you, it’s best to get some professional advice. Talk to QBANK about superannuation choices and financial advice to secure your future.

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