Give your super a boost in three easy steps
Want to see your super grow faster? Here’s how you can — by choosing what happens to compulsory contributions from your employer.
On Wednesday 23 November 2016, the Federal Government’s proposed changes to super rules passed through Parliament. It’s worth understanding how the new rules will affect you and your financial strategy.
|Current rule||New rule (from 1 July 2017)|
|Concessional (pre-tax) contributions
|$30,000 annual contributions cap ($35,000 if you were 49 or over on 30 June 2016)
||$25,000 annual contributions cap regardless of age
|Contributions are taxed at 15% if your total income (including concessional contributions) is under $300,000; 30% if you earn more
||30% tax on contributions starts at once you earn $250,000
|Non-concessional (after-tax) contributions|
|$180,000 annual contributions cap||$100,000 annual contributions cap. No further non-concessional contributions permitted if your total super balance at the start of the year is $1.6 million or more.
|‘Bring forward’ rule allows three years’ worth of contributions (i.e. $540,000) to be made any time during a three year period if under 65 (any time during the year)
||‘Bring forward’ rule allows a maximum of $300,000 to be made any time during a three year period if under 65 (any time during the year)
Changes to concessional contributions
Pre-tax or concessional super contributions are the contributions you make without paying your marginal rate of income tax on them. They include:
These contributions are usually taxed at the low rate of 15%.
Currently, you can make up to $30,000 in concessional contributions in a financial year if you were less than 49 at 30 June 2016, or $35,000 if you were older.
This will now be changed to an annual cap of $25,000 for everyone from 1 July 2017.
Changes to non-concessional contributions
Also known as after-tax contributions, these are contributions you make from sources that have already been taxed. They generally include:
Currently these are capped at $180,000 a year. Or, if you’re under the age of 65 (any time during the year), you are able to apply the ‘bring-forward’ rule. This allows you to make up to three years’ worth of non-concessional contributions (currently $540,000) at any point during a three-year period.
The Government has reduced the annual cap to $100,000 from 1 July 2017.
Under the new rules, if you’re eligible you’ll still be able to apply the bring-forward rule and contribute up to $300,000 at any time during a three-year period.
In addition, from 1 July 2017 the Government will no longer allow you to make any further non-concessional contributions once your total super balance reaches $1.6 million.
Who can contribute to super?
Generally speaking, anyone under the age of 65 can make concessional or non-concessional contributions to their super.
If you’re aged 65 to 74 you have to pass a work test before you can contribute. This means you need to have worked (for gain or reward) for at least 40 hours within a 30 day period to be able to contribute for that financial year.
If you’re 75 or over, you’re usually not able to make voluntary contributions to super.
These eligibility rules don’t apply to your employer’s compulsory contributions (e.g. their SG contributions). They can be made at any time, regardless of your age.
What happens if you go over the caps?
These penalties apply if you exceed the super contributions caps:
It’s important to get the right advice
If you’re using the current contributions caps to boost your super, the Government’s changes could have a significant impact on your retirement planning.
That’s why you should speak to a financial adviser, who can review your situation and build a strategy to help you get the most out of your super contributions.