Navigating the Australian Superannuation Changes 2017

Transcription

1 Navigating the Australian Superannuation Changes 2017

2 WOTHERSPOON WEALTH Independent Financial Advice ebook Series 2017 NAVIGATING THE SUPER CHANGES The Federal Government s new superannuation reforms have now become law. Introduced to reduce the Budget deficit, they impact everyone. Whether you are saving for future retirement, about to retire, or already retired, the changes may impact you sooner than you think. Most measures will apply from 1 st July 2017 so there is a window of opportunity until then to take action to improve your retirement outcomes. This ebook is designed to inform you of the key changes but we strongly recommend you seek personal financial advice before taking any action. Wotherspoon Wealth Pty Ltd ABN AFS Licensee No Portrush Rd, Glen Osmond SA 5064 PO Box 80, Glen Osmond SA 5064 T (08) / F (08) Hello@WotherspoonWealth.com.au WotherspoonWealth.com.au

3 INTRODUCTION What is Superannuation? Superannuation is an attractive way to save for your retirement. The money comes from contributions made into your super fund by your employer and ideally topped up by your own money. Over the course of your working life, these contributions from your employer add up (accumulate). For most Australians, superannuation will be their biggest investment and it can be one of the most tax effective ways to save for retirement while enhancing and preserving your wealth. When you retire, it provides money to live off a nest egg. Importantly, super is a lifetime investment with many benefits. Why use Superannuation? Superannuation is simply a tax structure. While you accumulate, income earned within your fund (dividends, rent and interest) are taxed at 15% and capital gains are taxed at 10% (for assets held >1 year). This low tax is usually quite attractive compared with your Marginal Tax rate. When you retire and start drawing a pension from your super savings, earnings and capital gains in your fund are then taxfree. To contain the extent of this generous benefit, the Government has now placed limits on the amount you can hold in pension phase - as discussed later in this ebook. Choosing the right fund for you Most people can choose which super fund they d like their super contributions paid into. Some of the major types of funds are: Industry Funds: Traditionally established with strong affiliations to particular industries, these funds offer limited investment options or member control. Being not-for-profit, they're generally low cost and provide basic insurance cover. Retail Funds: Retail funds are large public offer funds usually run by banks or investment companies. They generally offer more investment options than an industry fund. Typically, their costs are higher than an industry fund - the company that owns the retail fund aims to retain some of the profit. Corporate Funds: These funds are now less common. They are similar to an industry fund but are arranged or operated by large employers for their employees. 'Super Wrap' administration services: Super Wrap services are usually offered by major financial institutions as they involve considerable IT expense. They provide the trustee facility as well as the administration service to manage the paperwork while allowing you to invest in a range of investments approved by the trustees. Essentially, the wrap administration provides the legal structure and administrative/tax support of a super fund, enabling members to invest more conventionally and at their own discretion for more control. 1 // Navigating the Australian Superannuation Changes

4 Self-Managed Super Fund (SMSF): SMSFs enable an even wider range of investments than a Super Wrap, with all members taking responsibility as trustees of the fund. Usually the trustee/members of the fund obtain administrative and tax support from SMSF specialists. They are particularly popular where members wish to own direct property and/or build direct share portfolios. To learn more about Self Managed Super, ask us for our Guide to Self Managed Super ebook. Seek Advice Superannuation is a very tax effective way to save for retirement but it is also very complex. We encourage you to contact one of our private wealth advisers to help you with the detail. To request your complimentary first appointment you can call us on (08) or Hello@WotherspoonWealth.com.au Making Contributions For employees, your employer must pay an amount equal to 9.5% of your salary into your super fund account. You can make extra contributions by asking your employer to deduct money from your pay (before tax is taken out) and pay this into your super account - called concessional contributions. If you are self-employed, you can put some of your savings or business income into your super account and claim a deduction against your taxable income for this. They are also called concessional contributions. You could also use some of your savings to make after-tax contributions - these are called non-concessional contributions. This may be possible whether you're an employee or self-employed. But there are limits to this lightly taxed super. The Government sets down annual limits available for each type of contribution - these will be covered in this ebook 2 // Navigating the Australian Superannuation Changes

5 Introducing the Transfer Balance Cap There will now be a $1.6 million transfer balance cap on the total amount of accumulated superannuation you can transfer into the tax-free retirement phase (pension). As you accumulate super over your working life, your balance is held in Accumulation phase. There, any earnings (dividends, rent and interest) are taxed at 15% p.a. and capital gains on assets held more than a year are taxed at 10% p.a. Previously, you could transfer an unlimited amount from accumulation to pension phase. Now, a fairness limit has been placed on the amount you can hold taxfree in pension phase. But there is still no limit on the savings you can hold in accumulation phase. Those who now have over $1.6 million in super or are likely to exceed $1.6 million in the future. Once you retire or reach age 65, you can transfer your super balance to Pension phase. Then, you can start drawing an income from your accumulated savings and the underlying investments become tax-free. Reducing the Concessional Cap Concessional Contributions are now limited to $25,000 p.a. Superannuation contributions have two pathways: 1. Concessional (pre-tax) contributions, like employer and salary sacrifice contributions; or Previously, the 'Concessional Contribution' limit was $30,000 for those aged under 49 or $35,000 for those aged 50 years or over. From 1st July 2017, this limit drops to $25,000 p.a. regardless of age. So, total employer and salary sacrificed contributions you can have each financial year cannot exceed $25, Non-Concessional (after-tax) contributions, where you use your own saved money to add more to super. Everyone. 3 // Navigating the Australian Superannuation Changes

6 Improving Access to Concessional Contributions An income tax deduction for personal super contributions was previously only available to people who earned less than 10% of their income from salary and wages. This limitation is being removed. Concessional contributions can be made from income before your Income Tax is paid so these reduce your taxable income. It is a benefit of salary sacrificed contributions. Instead of receiving the income as salary and paying tax at your Marginal Tax Rate (perhaps up to 49% with Medicare Levy), you sacrifice the income to super and instead pay 15% super contributions tax (30% tax for income over $250,000). What if you have income that isn't from a salary? Perhaps you ve realised a gain from selling property or shares. This rule change means you ll be able to make concessional contributions using the sale proceeds (while staying under the $25,000 p.a. cap) and you could claim a personal tax deduction on this. Anyone with an income source mostly not as an employee. Lowering the Non-Concessional Contribution Cap The Non-Concessional Contribution limit is being reduced to $100,000 p.a. (or $300,000 if brought forward over a three-year period). Non-Concessional (after-tax) contributions are those that use your own money (perhaps savings from your income) to add more to your super savings without claiming a tax deduction. reduce to $100,000 p.a. (or $300,000 when brought forward). Anyone wishing to boost their super with personal savings. Before these changes, you could make up to $180,000 of non-concessional contributions each year; or $540,000 if bringing forward over a three-year period. This limit will now 4 // Navigating the Australian Superannuation Changes

7 Preventing those with over $1.6m from making further Non-Concessional Contributions After 30th June 2017, those with over $1.6 million of total superannuation can't make further Non-Concessional Contributions. Anyone who currently has $1.6 million or more in super or is likely to exceed $1.6 million in the future. Regardless of the annual non-concessional contribution caps, if you now have $1.6 million or more in your combined super accounts (Accumulation and Pension Phases), you will no longer be able to make non-concessional contributions. Lowering the income thresholds for the higher contributions tax for high income earners Higher contributions tax (30% vs 15%) for high income earners is being reduced to $250,000 p.a. Those with income including their super contributions (like employer contributions) of $250,000 or more per year. Until 30 June 2017, if your annual income including super contributions exceeded the income threshold of $300,000 p.a., your concessional super contributions above the threshold would attract an extra 15% tax (making a total of 30%). From 1 July 2017, this income threshold will be reduced to $250,000 p.a 5 // Navigating the Australian Superannuation Changes

8 Increasing the tax on underlying earnings in Transition to Retirement Income Streams The tax on underlying earnings in Transition to Retirement Income Streams (TTR/TRIS*) is being increased so they are taxed the same as an accumulation fund (15% / 10%). When you reach your preservation age (now if you re age 56 or above), you can start a Transition to Retirement (TTR) Pension from your Accumulation Superannuation savings. This helps people who are transitioning to retirement so they can supplement their declining employment income with a superannuation pension. * A TTR is sometimes also called a Transition to Retirement Income Stream (TRIS). When funds are transferred from accumulation to pension phase, tax on earnings from the underlying investments has been 0% p.a. rather than the normal 15% on income and 10% on capital gains when in Accumulation Phase. From 1 July 2017, this 0% tax benefit on your Transitional Pension Account will cease. Any funds supporting a Transition to Retirement (TTR) pension will instead be taxed as if they re in Accumulation Phase. Those currently (or intending to) draw a Transition (TTR/TRIS) Pension. Conclusion The rest is up to you. We hope this ebook has helped you understand the upcoming Superannuation Changes better. Our clients come to us with money to invest and maintain, or with a real desire and capacity to start building their wealth. You may have already started investing on your own but are now looking to work together with knowledgeable, skilled professionals to take it to the next level and manage risk Perhaps your time is at a premium (or you'd rather spend it on other things) and you understand the value of delegating to professionals while monitoring progress? If that sounds like you, we invite you to call us on (08) to request your complimentary first appointment with one of our Private Wealth Advisers. Our Financial Services Guide is available on our website at WotherspoonWealth.com.au. 6 // Navigating the Australian Superannuation Changes

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