Changes to superannuation are almost here – don’t keep your head in the sand


Neil Rogan

It’s time to seriously consider tax-effective options outside of super.

According to Neil Rogan, General Manager of Investment Bonds for Centuria, time is running out for Australians likely to be affected by changes to superannuation which come into effect on 1st July 2017. He warns advisers and their clients to take stock of what the changes might mean for them, and what, if anything, can be done about it.

Two groups of Australians are most likely to be affected by the changes to super: those with large superannuation balances, either in the accumulation or retirement phase; and those on the highest marginal tax rate. Both groups may find themselves with excess funds that they are unwilling to keep within the superannuation system.

The good news is there are tax-effective investment options outside of super. It’s just a question of assessing which are right for you.

I have summarised below the changes – and who will be most affected.

Australians with large super balances are a target and tax-free retirement phase balances over $1.6 million will need to be transferred out.

Australians with large super balances have been targeted because the Government has ruled that super should be a way for all Australians to fund their retirement, not a way for the wealthy to accumulate large sums in a tax-advantaged environment. Or to pass on to the next generation.

Excess funds may be transferred back to an accumulation fund (within the super system) or outside of the system altogether.

Non-concessional contributions to super of $540,000 over 3 years are now a thing of the past.

Non-concessional contributions to super will now be limited, and not possible at all for some. This is because non-concessional contribution are tax-advantaged once in super, even though they have had tax paid on them before they entered the system.

From 1 July 2017, annual non-concessional contributions must not exceed $100,000 per annum – a maximum of $300,000. And you can only make non-concessional contributions at all if you have a super balance of less than $1.6 million.

Tax hikes for high earners and penalties for contributing more than $25,000 p.a. to super.

High earners are affected by higher tax rates and lower thresholds for concessional contributions.

Anyone earning over $250,000 p.a. will pay 30% on contributions to super, double the usual contributions tax. In addition, the general concessional contributions cap will be lowered from $30,000 to $25,000 p.a.

So, what can those affected by the changes do?

It is worth considering investing excess funds in alternative tax-effective structures if you or your clients have:

  • Over $1.6 million in a retirement phase account and need to transfer it out or
  • Have hit the $1.6 million limit in non-concessional contributions.

High income earners will find themselves paying double tax on their concessional contributions (if they earn $250,000 pa or more) and on any non-super contributions over the $25,000 annual limit.

For these groups, there are options outside of super worth considering.

I will be hosting a webinar on Tuesday 9th May at 11am to give advisers and their clients more detailed information about investment bonds – their uses, how they are structured and how they work in different situations in light of the superannuation changes.

Please feel free to join me – you can also Tweet your questions at me (@NeilRogan1 or #AskNeil), or shoot them through live and I’ll answer them during the session. I will be very happy to answer any questions you may have about the suitability of investment bonds for your clients in different circumstances.



Summary of the changes most likely to affect SMSFs

Changes take effect from 1 July 2017

Transfer balance cap

A maximum of $1.6 million can be transferred to the tax-free retirement phase. Those with retirement phase balances of over $1.6 million will have 6 months to transfer the excess out of super or back into an accumulation fund.

Concessional super contribution cap reduced.

Concessional contributions to super are limited to $25,000 per annum.

Non-concessional contributions cap reduced and new criteria introduced

Annual non-concessional contributions must not exceed $100,000 (dropped from $180,000).

Lowering of the income threshold from $300,000 to $250,000 for 30% rather than 15% tax on contributions. This means that Australians with an income of $250,000 per annum or more will pay 30%, double the usual tax rate of 15% on contributions into super.

Transition to retirement pensions will lose their tax-free status

Earnings on fund assets supporting a transition to retirement pension will be taxed at the same 15% tax as accumulation funds.

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