Does super still shape up?

On 15 September the Government announced three significant amendments to their proposed superannuation reforms:

1. Super contribution cap

The original proposal was to establish a lifetime non-concessional contribution (NCC) limit of $500,000. Controversially, this was to be backdated to 1 July 2007.

This measure is now replaced with an annual NCC cap of $100,000 (currently $180,000), with individuals under age 65 still able to bring-forward three years of contributions. However, individuals with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017.

2. Work test retained

Currently over 65 year olds can’t contribute to super unless they meet a work test. The Government had proposed to remove this test and enable retirees to contribute to super up to age 75.

This proposal has been removed.

3. Catch up concessional contributions delayed

One of the more creative measures proposed in the budget was the ability to catch up on concessional super contributions (such as salary sacrifice) for individuals who don’t take full advantage of them each year.

This proposal remains, but the commencement date has been pushed back one year to 1 July 2018.

So, does super still shape up?

It’s important to remember that the real appeal of superannuation comes down to the tax concessions – and the good news is that these benefits have largely been retained – with nil tax on investment earnings and income payments for retirees aged 60 or more.

In fact, the concessions available in retirement are so generous that the Government has been compelled to limit the amount that can be accumulated, in what is effectively a legal tax haven.

Cherries on top

In addition to the existing benefits, several of the proposed changes present attractive new tax planning opportunities, including;

  • The ability to claim personal superannuation contributions as a tax deduction.
  • Carrying forward unmade tax-deductible contributions for up to 5 years – potentially enabling a tax deductible contribution of up to $125,000 in the right set of circumstances.
  • Extending the tax rebate available on spouse superannuation contributions to spouses earning up to $40,000pa.

So with superannuation more attractive than ever, what can we do to make the most of the opportunity?

Plan Early

Many investors wait until late in their career before focusing on their superannuation – but a shift in the contribution rules will make it much harder to beef up your balance in the last few years before retirement. As a result, smart investors will start building their superannuation much earlier – a strategy that gives the added bonus of compounded earnings.

Regularly splitting superannuation with your spouse will also come in for closer attention, and should be on the radar for those seeking to maximise their combined balance.

Remember – none of these measures come into effect until passed into law, and we expect the final measures will be subject to amendment – as such you should contact us for personal advice before taking any action.