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You may think you have your retirement finances under control but did you know that changes in the new financial year could have significant impacts on your financial status? Here’s a quick overview of the key changes that came into effect for this financial year.
A universal change regardless of age is the new concessional, or before-tax, superannuation contributions cap of $25,000. As for the non-concessional or after tax contributions, the limit is $100,000 with a 3-year-bring-forward cap of $300,000. Accountant and financial planner Simon Wu explains.
“Previously, the maximum you can put in is $180,000 a year. Now, down to $100,000. In other words, the 3 year accumulative contribution before the end of June year is $540 - that means 3 times the $180,000, now has been reduced down to $300,000.”
Basil La Brooy from the Financial Information Desk at National Seniors Australia says there are opportunities for everyone to claim a tax deduction up to the concessional contribution cap, where previously not possible.
“If your employer is putting in their contributions last financial year, you would not have been able to claim tax deduction for further contributions you put in. The only way would have been to use salary sacrifice. Now, you can come to end of the year, and you might say, I’ve got a bit of extra money, which I’d like to put away, and instead of paying full tax on it, if I claim a tax deduction, I’ll put it in to my superannuation, and it’ll be taxed at a maximum rate of 15% in the hands of the super fund instead of your marginal tax rate.”
Simon Wu says the 3-year-bring-forward cap of $300,000 could be beneficial for people over 65 who are looking to downsize their home.
“If they want to downsize their own home, they have the ability to contribute $300,000 each into super, and then benefit from this lower tax environment, but of course, there are many conditions attached like you have to stay in the house for 10 years; it has to be your own home.”
Before this financial year, there was no limitation of how much super funds money you can put into the tax-free pension phase - that limit is now $1.6 million. This major change affects pensioners, those on annuity income stream close to or above the cap, or have started a retirement phase income stream this July.
Those with more than $1.6 million have until the end of the year to bring their retirement phase balances under $1.6 million.
Basil La Brooy explains.
“Basically, if you’ve got more than one income stream, the maximum you can have is $1.6 million dollars, so it’s something that a lot of people have to be mindful of, and some people have to reduce the amount of money that they have in the income streams to fit within that cap.”
Some food for thought…Simon Wu says retirees, who have purchased properties using their self-managed super funds, may find a rude awakening if a proposed change to the way an individual’s super balance is calculated, where a ‘limited recourse borrowing arrangements’ is in place, gets legislated.
“If you own, say, $3 million property in your self-managed super fund, and you borrowed $2 million, you basically only have $1 million asset, and therefore, the net asset is if you have $3 million in your self-managed super fund, which is the assets, $1 million is your own money, you have not exceeded the $1.6 million cap yet, but the government think the total super balance cap is based on the gross asset, which is $3 million, and $1 million net asset. Suddenly, your asset position has been blown up to $3 million, which $2 million not belong to you, which is quite unfavourable.”
More couples are now entitled to spouse tax offset with the spouse income threshold increased to $37,000 or less and if you contribute to the eligible super fund of your spouse. This applies to both married and de facto couples. This reform also allows a spouse to make more contribution to the other spouse’s superannuation.
“There is a maximum contribution of $3000 and the tax offset is 18%, so the spouses making contribution can get up to $540 taken off their tax bill - provided the spouse on whose behalf they make the contribution has a taxable income, including reportable fringe benefits of less than $37,000.”
Low and middle income earners could be entitled to a government co-contribution of up to $500 dollars into their super. Basil La Brooy explains.
“The new allowable income levels have been changed, so for this financial year, it’s up to $36,813. If a person puts in $1000 as an after-tax contribution to super, they can get a $500 co-contribution from the government."
The co-contribution amount reduces to nil once an individual’s income reaches $51,813. Another reform affecting working pensioners is the amount of income they can earn before their pension is reduced.
“So, for a single person, that has gone up to $168 a fortnight, but the important thing is to remember, that is on the basis that Centrelink calculates their income. The figure for a couple is $300 per fortnight and that’s combined.”
There have also been changes to how much asset a person can hold before the pension reduces. With single home-owners now allowed having assessable assets of up to $253,750 before the pension reduces. A single non-homeowner can have up to $456,750, and couples with a home, $380,500 and $583,500 for couples without a home. So, for every $1000 of extra asset over the threshold, the pension is reduced by $3 a fortnight.
“The thing people need to be careful of there is that if those assets happen to be money or shares, or what the government calls ‘financial investments’, then under the income test, they’re still going to be affected, even though they would’ve been safe under the assets test from any reduction, so it’s a lot of things that people have to understand about what options or what the rules are in respect of super and pensions.”
For more information on the latest super changes, visit the Australian Taxation Office website at ato.gov.au