With the superannuation changes announced in the 2016 Federal Budget now passed by Parliament, there is greater certainty for you when approaching your SMSF planning and the contributions you might wish to make to your SMSF.
Concessional (pre-tax) contributions made into your SMSF are included in the SMSF’s assessable income. They are taxed in your SMSF at a ‘concessional’ rate of 15%. These include compulsory contributions made by your employer, additional salary sacrifice contributions and personal deductible contributions.
Non-concessional (after-tax) contributions made into your SMSF are not included in the SMSF’s assessable income. Most commonly these include personal contributions from after-tax income and where no income tax deduction is claimed.
The Government is lowering both the concessional (pre-tax) and non-concessional (after-tax) contribution limits from 1 July 2017.
One of the original proposed measures which received a lot of comment and caused concern was the $500,000 lifetime after-tax contribution limit. This proposed measure was dropped and replaced with a $100,000 annual limit on after-tax contributions.
Pre-tax contributions will be limited to $25,000 for all taxpayers from 1 July 2017.
Below is a summary of the changes for both concessional and non-concessional contributions that you should be aware of.
After- tax contributions:
- The $500,000 lifetime limit has been dropped in favour of a $100,000 annual cap. The rules allow the opportunity to bring forward three years of contributions – making it possible to contribute $300,000 in one year.
- For the 2016/17 year, it is still possible to make a contribution of up to $180,000 for one year, or to bring forward three years’ contributions – so you are able to make a contribution of up to $540,000. If you do not use this full limit of $180,000 or $540,000 in the 2016/17 year, then you will be limited to the $100,000 annual and $300,000 bring forward caps for future years.
- Where the bring forward of contributions has been triggered before 1 July 2017, transitional contribution caps may apply.
- If you have a balance of $1.6 million or more in your total superannuation at 1 July 2017 then you will not be able to make further after-tax contributions.
- When approaching the $1.6 million cap, care will need to be taken with the bring forward rules as these are restricted by the new $1.6 million balance limit.
- The concessional contributions cap is lowered to $25,000 per year for all taxpayers from 1 July 2017.
- Taxpayers who were aged 49 or over on 30 June 2016 can make up to $35,000 in pre-tax contributions in 2016/17.
- Those aged under 49 on 30 June 2016 can make up to $30,000 in pre-tax contributions in 2016/17.
Some of these changes may require you to adjust your contribution strategies going forward, in conjunction with speaking to an SMSF Specialist.
This will most likely be the case if you have a superannuation balance of over or close to $1.6 million or were planning on making significant contributions to superannuation in the next few years.
Seek advice from an SMSF Specialist
It is important to seek the advice of an SMSF Specialist in order to assist you in understanding these rules and how they may relate to your specific circumstances. To find your nearest SMSF Specialist, use our Find a Specialist function.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.