With 30 June fast approaching, time is running out to make any last super contributions before a raft of important rule changes from 1 July 2017.

Concessional contributions

From 1 July 2017, the concessional (deductible) contributions cap is reducing to $25,000 for everyone. Previously, it was $35,000 for people 49 years and older at the end of the previous financial year and $30,000 for everyone else.  These caps include Super Guarantee employer contributions and salary sacrifice.  If you are self-employed and looking to maximise your contributions for this financial year, so it’s important to check what concessional contributions have been made to all your super funds from 1 July 2016 to ensure you are not in excess.

Maximising the non-concessional bring forward rules

Non-concessional contributions are made after-tax where no deduction is made.  Under the current rules, these contributions can be made at $180,000 per year or 3 years at once brought forward to $540,000.

From 1 July 2017, the annual non-concessional contribution cap will be reduced from $180,000 to $100,000 per year. This will remain available to individuals aged between 65 and 74 years old if they meet the work test.

If you have triggered the bring-forward period in 2015–16 or 2016–17 but you have not fully used your bring-forward amount before 1 July 2017, transitional arrangements will apply. This means that the maximum amount of bring-forward available will reflect the reduced annual contribution caps.  Note that your maximum bring-forward amount in 2016–17 has not changed. It is still $540,000 if you have not triggered the bring-forward rules in 2014–15 or 2015–16.  Besides any large lumps sum non-concessional contributions, it is important to take into account any smaller contributions that may have been made over the past 3 years (eg. To qualify the Government co-contribution), which will form part of the cap.

From 1 July 2017, your non-concessional cap will be nil for a financial year if you have a total superannuation balance greater than or equal to $1.6 million.  In this case, if you make non-concessional contributions in that year, they will be excess non-concessional contributions.

Government Co-contribution

Those looking to qualify for the Government Co-contribution should look to make a non-concessional contribution before 30 June 3017.

To receive the maximum co-contribution of $500 you must contribute $1,000 of after-tax money and earn less than $36,021 during the 2016/17 financial year.  If your income is greater than $36,021, the maximum entitlement will gradually reduce to zero at $51,021 per year.  Age and work tests apply to those between age 65 and 71.

Minimum account based pension payments

For those people with Self Managed Super funds who are drawing an account based pension, remember to make the minimum age-based pension payment before 30 June.  Failure to do so may mean losing the tax-free earning status within the fund.

We strongly recommend seeking advice before making any ad-hoc contributions to super to ensure it is appropriate to your situation.

Transition to RetirementMany people feel uncomfortable about approaching retirement.  For some the word it’s an unwanted reminder that they are getting older, even if they don’t feel it yet.  For those who are 55 and born before 1 July 1960, one big bonus of approaching this phase in life is being able to access a ‘Transition to Retirement’ strategy.  This is certainly nothing new but it constantly surprises me as to how few people are aware of this basic ace up their sleeve.

In short, a transition to retirement strategy enables people approaching retirement to access their super while they are still working.  This can be used to reduce working hours by supplementing income or saving tax and boosting super.  The latter involves making deductible contributions into super (such as salary sacrifice) and simultaneously drawing a tax-friendly income stream from an account based pension in order to maintain or achieve a desired level of net income.  The results are astounding over a number of years, especially once the person reaches age 60, as the pension income drawn becomes tax free.  The best way to demonstrate this is through a case study.

John has just turned 55 and has a taxable income of $90,000 per year ($66,053 after tax).  He has $150,000 in super, which has been accumulated over his working life from employer contributions only.  He is happy to work full-time for another 10 years until he turns 65.  For the purposes of the exercise, we will assume that John’s super fund will earn a return of 5% per year.  By implementing a transition to retirement strategy that matches his net income, John is able to save an average of $5,900 of tax per year, whilst growing his super balance by an additional $51,000.  If John decides to keep working beyond age 65, he can continue utilising this flexible strategy until he turns 75.  The same strategy could be implemented for John’s wife who is also 55 and happens to work part-time.  This is a deliberate example using only conservative numbers.  Larger incomes and super balances produce better results again.  If John and his wife had a mortgage, the strategy could be structured to pay an income above what is needed to make additional repayments – effectively using tax effective income to pay down non-deductible debt.

A study conducted by ASIC suggested that as little as 20% of Australians seek financial advice.  If this is true, it’s actually no wonder that this strategy largely goes unnoticed.  If you are approaching age 55, now is the time to ensure you are getting ready to take advantage. If you’re not sure, there is no harm in asking.

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