Concessional contributions are those contributions that are taxed upon entry into super. These include the superannuation guarantee, salary sacrifice and those contributions where you claim a tax deduction.
What are the changes?
- Reduction in the concessional contribution cap to $25,000 regardless of age
- Carried forward concessional cap for account balances below $500,000
- Removal of the work test for those aged 65 -74
- All individuals under 75 will be eligible to claim a tax deduction for personal contributions
- Reduction in income threshold to $250,000 where additional super contribution tax applies
- Reduction in tax for people earning less than $37,000
Reduction in concessional contribution cap
Currently concessional contribution caps are determined by age. For those who are aged 50 and above a cap of $35,000 pa currently applies. The cap is only $30,000 pa for those aged under 50. From 1 July 2017, the concessional contribution cap will be reduced to $25,000 for everyone, regardless of your age. Opportunities exist to maximise contributions towards your existing cap before it is reduced from 1 July 2017.
Carried forward concessional cap for account balances below $500,000
Currently a per year concessional contribution cap applies. If the cap is not utilised, it’s forfeited. From 1 July 2017, those who have super account balances less than $500,000 will have the ability to carry forward unused cap amounts for a period of 5 years. This allows flexibility for those who have had
interrupted work patterns or those who experience uneven income and have not had consistent contributions or limited contributions to super.
Emily is 40 years old has two young children. She has had broken work patterns over the last 4 years as she has taken time out of the workforce to raise her children. She has an accumulated $80,000 in super and wants to return to work in Oct 2017 full time earning $65,000 per year. Emily and her husband Matt decide that they will spend a year (2017/18) paying off as much of their mortgage as possible. As Emily will only have SG contributions of $6,175 going into her account, she will have the ability to carry forward the remaining $18,825 for 5 years. In the 2018/19 year, she could potentially make concessional contributions of up to $43,825.
Removal of the work test for those aged between 65 and 74
Currently, those aged over 65 and under 74 need to meet a
work test to make a contribution to super. From 1 July 2017, all persons aged below 75 will have the ability to make a voluntary super contribution without the need to meet the work test. This creates opportunity for more people to contribute to super for longer.
All individuals under 75 will be eligible to claim a tax deduction for personal contributions
Currently, those who derive less than 10% of their income from “eligible employment activities” have the ability to claim tax deductions for personal contributions made to super. From 1 July 2017 all individuals under age 75 will be eligible to claim a tax deduction for personal contributions made to super. This measure also allows those that are over age 65 and no longer working to make deductible contributions to super without needing to meet the work test.
Reduction in income threshold to $250,000 where additional super contribution tax applies
Currently where an individual has income of greater than $300,000, they will pay an additional 15% on their concessional contributions. From 1 July 2017, this income threshold will drop to $250,000. Although this measure will potentially capture more people, the ability to claim a personal tax deduction and the comparable tax rate outside of super continue to make contributing to super attractive.
Introduction of low income super tax offset
From 1 July 2017 those on an adjusted taxable income of less than $37,000 will effectively receive a refund of the tax paid on their concessional contributions up to $500. This measure avoids the situation where a person on adjusted taxable income below $37,000 is paying more tax on their super contributions than on income earned outside of super.
The budget proposals in relation to concessional contributions are just that, proposals. To ensure you get the right advice for your situation, please call us on (02) 9894 1844.
Disclaimer: This information was prepared by Magnitude Group Pty Ltd, ABN 54 086 266 202 and AFSL 221557 and is current as at 04 May 2016. Material contained in this publication is an
overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This Information may contain material provided
directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive
statement on any matter nor relied upon as such. While such material is published with necessary permission, neither Westpac Group nor its group of companies accepts
responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This
information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before
acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is
based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. It is important to note that the
policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement. The taxation position described in this Federal
Budget update 2016 is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.