We are less than 10 days away from Scott Morrison’s first budget and one thing you can guarantee is there will be some proposed changes to superannuation.
What will the changes be? We don’t know exactly as the Government has confirmed nothing at this stage, but the next guarantee I can offer you is the proposed budget changes will take a small amount of the shine off a wonderfully lucrative system.
So what can you do in the next few days to minimise any impact of these potentially limiting budget changes:
- Maximise concessional (pre-tax) contributions – it is accepted that these annual maximum contribution limits of $30,000 ($35,000 if you are 50 or over) will reduce from 1 July 2016. The tax payable on these contributions is 15%, however if your “adjusted taxable income (ATI)” is greater than $300,000 this tax doubles to 30%. From 1 July 2016 concessional contribution limits may decrease to an amount as low as $20,000 and the ATI threshold may also decrease to $180,000.
- Maximise non-concessional (after-tax) contributions – This annual limit, which is currently $180,000, is tied to the annual concessional contributions limit by a multiple of 6. If the concessional limit outlined in point 1 reduces to $20,000, then it follows the annual non-concessional contribution will decrease to $120,000 (6 x $20,000). If you were always going to put a large amount into superannuation, it may be best to do this prior to budget night otherwise a new non-concessional limit may significantly impact your future planning.
- Use the “Bring Forward” rule – this rule enables you to make 3 years worth of non-concessional contributions in one year. Subject to eligibility criteria, you are currently able to contribute $540,000 (3 x $180,000) in one year. If the non-concessional contributions limit changes to $120,000 (and assuming the bring forward rule still exists), the maximum contribution under the 3 year rule would be $360,000.
- Commence a Transition to Retirement Income Stream (TRIS) – the feeling that this type of income stream will no longer be available is gathering momentum. The TRIS strategy was originally designed to assist those who were reducing their working hours. A TRIS gives these workers access to some income from their superannuation to help supplement a reduction of employment income. Unfortunately, it also allows continuing full time workers, especially those aged 60 or over, to exploit the tax-free treatment of the income stream to significantly increase their annual income. Taxpayers commencing a TRIS prior to budget night are likely to be able to continue to receive these income payments if future TRISs are scrapped from this date.
- Start Planning a long way out – regardless of what happens with the budget, people should take every chance they can to plan for their future. As much as we find government interference distasteful, it something you will always have to deal with. Have a range of options, think long-term, get in the habit of spending less than you earn, educate yourself and read widely about investment options as there are resources everywhere.
If you need to talk more and want to be pointed in the right direction, see the team at Green Taylor Partners.