Recently we, quite broadly, discussed all of the New Super Reform changes that are coming into effect only 1 July 2017. As a fundamental and complete understanding of all these changes are essential for everyone. This blog post will continue and go in to depth on two of the ten outcomes:
1. The lowering of the annual concessional (before tax) contributions cap and,
2. The reduction in the high-income contributions tax threshold.
Lowering the annual concessional (before tax) contributions cap
From 1 July 2017, the Government will reduce the annual cap on concessional contributions to $25,000. This is a reduction of $5,000 for people over 50 and $10,000 for members under 50.
What should you be considering?
• Is it possible to maximise the concessional contributions in the 2016/17 financial year to make the most of the higher cap in the current year before the reduction;
• Being clear on what counts towards the concessional contributions cap.
· Does your salary sacrifice amount need to be adjusted with your employer?
Reducing the high-income contributions tax threshold
From 1st July 2017, the Government will reduce the 'high-income' threshold, above which individuals will be required to pay an additional 15% tax on their concessional contributions, from $300,000 to $250,000 per annum.
· According to the ATO, the definition of 'income' for Division 293 tax purposes includes:
o taxable income (assessable income minus allowable deductions)
o total reportable fringe benefit amounts (added to income even though they are not taxable)
o net financial investment loss (i.e. not included as a deduction)
o net rental property loss (i.e. not included as a deduction)
o net amount on which family trust distribution tax has been paid
o concessional super contributions made within the concessional cap for the financial year (known as 'low-tax contributions' for the purposes of this calculation)
What do you need to be considering?
• What will be the tax impact from this reduction?
• If salary sacrifice contributions are being made, consideration needs to be given about whether this is still effective.
• If the individual is receiving discretionary income, consideration needs to be given around this discretionary income being redirected.
• If the individual is a joint asset owner of assets that derive income, consideration to be given around the continued joint ownership of those assets, or whether a restructure is beneficial.
• If you receive fringe benefits from your employer, are they worth it considering the additional 15% tax on top of the 48.5% tax already applied on fringe benefits?
This is general advice, to discuss your situation contact us on 07 3378 7733 for an obligation free consultation with a self-managed superannuation specialist.