Changes to superannuation rules will come into effect on 1 July 2017
While the Government will reduce the amount you can put into super from 1 July this year, the good news is that you can still take advantage of the higher limits before the financial year ends.
An after-tax contribution, also called a non-concessional contribution, is a payment into your super from your after-tax income. This money is not taxed as you’ve already paid tax on it at your normal rate. There’s a limit of $180,000 on the amount of after-tax contributions you can make for the 2016/17 financial year.
From 1 July 2017, the annual cap will be reduced to $100,000 and those under age 65 will still be able to bring forward three years of after-tax contributions, up to $300,000, using the bring-forward rules.
If you’re a low or middle-income earner and make after-tax contributions to your super fund, you may be eligible to receive a co-contribution, which is where the Government will make a contribution of up to $500 into your super fund.
If your total income is equal to or less than $36,021 and you make a personal contribution of $1,000 to your super account, you will receive the maximum co-contribution of $500.
If your total income is between $36,021 and $51,021, your maximum entitlement will reduce progressively as your income rises.
Note, other eligibility criteria does apply and you will not receive any co-contribution if your income is equal to or greater than the higher income threshold.
A before-tax contribution, also known a concessional contribution, is any money you put into your superannuation from your before-tax income. It’ll only be taxed 15%* provided that you don’t exceed the annual limit. Currently, the annual caps are $30,000 if you are under age 50 and $35,000 if you are aged 50 or over.
From 1 July 2017, the annual cap will be reduced to $25,000 regardless of your age.
The Superannuation guarantee scheme
The Super guarantee (SG) scheme is the 9.5% of your salary that your employer must pay into your super from your before-tax salary and will gradually increase to 12% by 2025/26. If you’re not sure what your employer is paying, check with your payroll department.
A salary sacrifice is when you make a before-tax contribution to your super. You choose to ‘sacrifice’ part of your before-tax salary, or bonus, and have your employer add it directly to your super account. This is in addition to the compulsory SG amount your employer is required to contribute.
One of the benefits of salary sacrifice contributions is that they are generally taxed in the super fund at 15%* instead of your marginal tax rate.
What if I’m self-employed?
You can make an after-tax contribution and claim it as a tax deduction. This amount will only be taxed at a rate of 15%* and you will need to complete a notice of intent form for us before you submit a tax return.
The low income super contribution (LISC)
If you earn $37,000 or less a year and put some before-tax money into your super that year, you may get an automatic payment into your super of up to $500 per year from the Australian Taxation Office (ATO).
*30% if you earn over $300,000 pa up to 30 June 2017 and changing to $250,000 pa from 1 July 2017.
For more information and making a super contribution
You’ll need to consider your own circumstances and before making any decisions, it’s a good idea to speak to your financial adviser.
Contributions must be received by 30 June 2017 to take advantage of existing cap rules.
The information contained in this article is general information only and does not constitute financial advice. It does not take into account your individual objectives, financial situation or needs, therefore, you should speak with your financial adviser before making any investment decisions.
Jason Ellis director of Southern Finance Solutions is a Financial Adviser and an Authorised Representative of Politis Investment Strategies and can be contacted on 08 8186 8484 to assist with any superannuation, investment and retirement plans.