As highlighted within a previous blog by one of my colleagues in December 2016, a majority of the superannuation reforms initially announced within the 2016/17 Federal Budget have now become law.
The new reforms include significant changes to the superannuation contributions caps with most taking effect from 1 July 2017.
Superannuation contributions caps have already been subject to numerous changes over the last 10 years, both in terms of the specific cap amounts and the implications of exceeding them. Whilst the dynamic nature of superannuation laws has inevitably created confusion and uncertainty, it is vital that the upcoming changes are understood and considered well in advance of 30 June 2017 to ensure that:
Initially it is important to understand that superannuation contributions are generally classified as either “concessional” or “non-concessional”.
Concessional contributions (known as before-tax, deducted contributions) are generally made from pre-tax sources (tax-deductible) and are subject to 15% contributions tax. Examples include employer contributions (superannuation guarantee and salary sacrificed amounts) and personal contributions claimed as a tax deduction. Division 293 Tax can also apply to concessional contributions for high income earners.
Non-concessional contributions (known as after-tax, undeducted contributions) are generally personal contributions made from after-tax sources (not tax-deductible) and are not subject to contributions tax. Excess concessional contributions can also be treated as non-concessional contributions. However it is important to note that some contributions are specifically excluded from being non-concessional contributions (i.e. government co-contributions, contributions arising from small business CGT concessions within CGT caps and contributions arising from certain personal injury compensation payments).
Separate caps apply to both concessional and non-concessional contributions to limit the amounts that can be contributed tax-effectively into superannuation. The caps are intended to maintain the equitability and sustainability of the superannuation system.
Below is an overview of the key changes to the superannuation contributions caps, and other related contribution reforms, that will apply from 1 July 2017:
CURRENT | NEW | |
AGE (as at 30 June of preceding year) | 2016/17 | 2017/18 |
Under 49 years | $30,000 | $25,000 |
49 years + | $35,000 | $25,000 |
Given that a majority of the above changes are to apply within the next 5 months, there is a limited time to reassess your current and planned superannuation contribution levels and to take action if required. Accordingly, we recommend that you review your personal financial position in light of the above changes as soon as possible (in conjunction with other superannuation reforms that will also apply from 1 July 2017).
If you are unsure of how the above changes will impact on your personal circumstances, please do not hesitate to contact BLG Business Advisers on (02) 4229 2211 or online to arrange an appointment with one of our experienced advisers.