Concessional and Non-Concessional Contributions
On July 1, 2017 concessional (pre-tax) contributions will be lowered from their current limits ($30,000 or $35,000 for people 50 years old and over) to $25,000 for all individuals and be indexed in line with wages growth.
Currently, the post-tax contribution cap is $180,000 per year. From 1 July 2017, the government will reduce the annual non-concessional (after tax) contribution cap to $100,000 per year. For individuals under the age of 65, they can ‘bring forward’ these contributions from one or two future years. So they can add up to $200,000 but would then be unable to make any contributions in the following year, or add up to $300,000 and be unable to make contributions for either of the following two years. These ‘bring forward’ amounts have been adjusted in line with the annual cap, as you could previously add up to $540,000 (3 x 180) for a three-year period.
Individuals whose superannuation balance on June 30 of the previous year exceeds $1.6 million dollars will no longer be able to make any non-concessional superannuation contributions.
Superannuation was designed to incentivise individuals to save for retirement by producing tax concessions. While this is still the case, the government aims to reduce those concessions for individuals who have clearly saved well in excess of the required amount to be self-sufficient in their retirement.
HOW IT COULD IMPACT YOU
The reductions in annual caps and the cut-off of $1.6 million dollars are targeted at reducing concessions to high-income earners. Clearly, for the many Australian income earners who earn less than $100,000 per annum in total income, adding more than $100,000 into their superannuation in any given year is not an option. In addition, employer guaranteed super contributions (which count towards the concessional cap) of 9.5% still wouldn’t come close to reaching the concessional cap for anyone earning under $200,000 per annum.
If you are earning a high income, the effect of this change is to drastically reduce the amount you can add to our super over a short period of time. As a result, if you would still like to maximise your superannuation, you will need to start early and consistently contribute over a number of years.
Please note that if you have a super balance under $500,000, you will be able to ‘carry-forward’ unused concessional super contributions on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire. This will still allow individuals with lower superannuation balances to bulk up their balance if need be.
By Jennifer Lowe