Q: I turned 65 this financial year and I will continue to work until 30 June 2017, when I plan to retire. Given all of the changes, I have lost confidence in the super system. Can I contribute up to $540,000 into super this financial year? Can you help me?

 

A:  The changes from 1 July 2017 can be confusing especially when it comes to how much you can contribute and the introduction of the lifetime cap on both contributions and pensions. The Government is lowering both the concessional (pre-tax) and non-concessional (after-tax) contribution caps from 1 July 2017.

One of the original proposed measures which received a great deal of attention, and caused concern was the $500,000-lifetime non- concessional contributions (after-tax contributions) cap.  This proposed measure was dropped and replaced with a $100,000 annual cap for non-concessional (after-tax) contributions.

From 1 July 2017, the non-concessional contribution cap (NCC) has been dropped to $100,000 per annum and if your ‘total superannuation balance’ [1](TSB) exceeds $1.6 million, then you will not be able to make further non-concessional contributions.

A limited window of opportunity exists prior to 30 June 2017 as follows:

  • Current contribution rules: For the 2016/17 year, it is still possible to make a non-concessional contribution of up to $180,000 for one year, or to bring forward three years’ contributions if you are under age 64 as at 1 July 2016 – 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.
  • Balance exceeding $1.6 million: If you have a balance of $1.6m or more in superannuation at 1/7/2017 then you will not be able to make further non-concessional contributions. However, you could take advantage of the current contribution rules prior to 30 June 2017[2].

Since you turned 65 during this financial year, you should be eligible to bring forward three years’ non-concessional contributions[3] but you will have to meet the super work test.

What is the super work test?
The Work Test applies to people aged 65 to 74 years who want to contribute to their super. If you are aged 65 – 74, you must have worked for at least 40 hours over 30 consecutive days in the financial year you wish to make a contribution in order to be eligible to make contributions to your super.

In practical terms, you could contribute $540,000 non-concessional contribution[4] prior to 30 June 2017 and if you have a spouse, the combined amount increases to $1,080,000 (ie $540,000 x 2). Should you decide to only contribute $180,000 this financial year, your total non-concessional contributions for the same 3 year period will reduce to by $160,000 to $380,000[5] (ie $540,000 – $380,000).Given you were under age 65 at the start of this financial year you are eligible to bring forward three years’ contributions.

If you have balance in super (including pensions) exceeding $1.6 million, you may be able to contribute into superannuation prior to 1 July 2017. The door closes on 1 July 2017 as you will be prevented from making any further non-concessional contributions and access the maximum tax of 15% on investment earnings. Contributing further funds into super within the caps can deliver taxation savings. For example, the super tax at 15% in comparison to the personal rate of 34.5% (including the Medicare Levy of 2%).

So what is next?

Do you know if you’re on track to meet your retirement goals?  Are you managing your personal income tax by taking advantage of the current rules as they stand even if you have a total superannuation balance above $1.6 million? Do you know how the changes impact your retirement planning?  If you are concerned that you cannot answer these questions and the Government’s changes to contributions for superannuation are going to affect you, then seek financial advice.  The limited window of opportunity provides some great opportunities and the 30 June 2017 deadline is fast approaching.

Article written by Damian Hearn, WealthPartners Specialist Adviser


[1] The total superannuation balance is the sum of a person’s accumulation and pension interest.

[2] Using the bring forward caps during the 2016/17 financial year will have an impact on your non-concessional contribution capacity for the 2017/18 and 2018/19 financial years. To ensure you will remain within the contribution caps, it is best to seek financial advice.

[3] Assuming you have not triggered it during the 2015/16 and 2014/15 financial years by contributing above $180,000 as a non-concessional contribution.

[4] Based on the eligibility criteria of a person being age 64 or below on 1 July 2016.

[5] Includes $180,000 2016/17 financial year, $100,000 2017/18 financial year and $100,000 2018/19 financial year. Assumes you are eligible to contribute into superannuation based on the contribution rules, work test, contribution caps and your super balance (including pension interests) is less than $1.6 million after 1 July 2017.