Introduced on 1 July 2017, the superannuation cap for concessional contributions is now just $25,000. Unlike the previous caps of $30,000 (for those under 50) and $35,000 (for those 50 and over), the new cap applies to everyone, regardless of your age.
If you have been making maximum concessional contributions or salary sacrificing in line with the old caps, you will need to make changes before 30 June to avoid paying additional tax on these contributions. There may still be time to do this, but only if you act NOW and you have not already exceeded the cap.
Concessional contributions include: employer super contributions; salary sacrifice super contributions; personal tax-deductible contributions; and premiums paid into a fund for super-owned insurance policies.
Also introduced on 1 July 2017, the superannuation cap for non-concessional contributions (those you make using after-tax money) is now $100,000, which is down from $180,000 (further restrictions apply when your super balance is $1.4 M or higher). As a consequence, you should review your overall super strategy. Adjustments may be required to help you make the most of super’s tax-efficient savings environment.
The revised contributions caps raise these important questions for you to consider:
Q1. Will your concessional super contributions exceed $25,000 by June 30?
High-income earners and those who have been making additional contributions to super need to review your contributions before 30 June 2018. If your current contribution strategy results in a breach of the new caps, you could face paying additional tax on these contributions.
Q2. What should you do with the money you can no longer contribute to super?
The new concessional contributions cap may influence your financial preparation for retirement, now that smaller amounts can be contributed to super in this manner. You will need to consider options about how to continue to accumulate wealth for your retirement.
One option may be to make non-concessional (after-tax) contributions to super. A second option may be to invest outside of super. While this may not be as tax-effective as in the super environment, it may provide an alternative retirement savings strategy for you. It’s important to discuss these and other options with me or with your Stratus Financial Group adviser as we will provide advice that is appropriate for your specific circumstances and financial goals.
Q3. How does the non-concessional contributions cap impact your super strategy?
This new cap effectively limits the amount of money you can put into super each year. For many Australians, their super strategy has relied on making sizeable contributions to top up their super balance over the ten or so years prior to their retirement as at this stage in your life, you may have surplus cash as children have left home and the mortgage has been repaid. The flat concessional contribution cap of $25,000 per year means you may not get the money you need for retirement into your super within that time frame. One solution for a healthy super balance is to begin contributing earlier and up to the available cap level.
Your next steps…
It is important for you to consider how the super contributions cap changes will affect you and to seek advice as soon as possible. Reviewing your circumstances now may enable you to make any necessary adjustments to comply with the new cap requirements. Leave it too late, and you may find yourself exceeding the cap and faced with paying additional tax.
Please give us a call on 07 3007 2007 or email as soon as possible so that you may properly understand your super situation.
Related reading:
How salary sacrifice may help you retire with more
Surplus income: 5 ways small amounts can make a big difference
At Stratus Financial Group, we help families, professionals, executives, business owners and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This information is of a general nature only, and neither represents nor is intended to be personal advice on any particular matter. Stratus Financial Group strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.
Taxation outcomes are illustrative only. Always confirm your tax position with a registered tax agent.