Changes to Superannuation Rules coming in the Budget?
There has been some media speculation in the lead up to the Federal Budget about potential changes to superannuation rules, including changes that might impact annual contribution caps and/or transition to retirement (TTR) strategies1.
So what might this mean for you?
While these changes are only speculative, now may be the time to consider making the most of any potential benefits available under the current rules. This includes considering:
- whether you can salary sacrifice the optimal level into super (being mindful of the contribution cap limits) and/or
- a transition to retirement pension if you’re of preservation age which enables you to draw a pension from your super while you’re still working.
What are the existing rules?
Superannuation contribution caps:
|Definition||Advantage under current rules|
|Concessional contributions are taxed at 15% and include contributions made through salary sacrifice arrangements or the compulsory superannuation from your employer.|
|Concessional contributions are capped at $30,000 if you’re under age 50 or $35,000 if you’re 49 or over at 30 June 2015.|
|Non-concessional contributions or after-tax contributions are contributions to super that you make from your after tax salary and wages or your accumulated savings.||After-tax contributions are capped at $180,000. However, if you are under age 65 you can contribute up to $540,000 in one financial year, under the bring-forward rule. This rule operates over a 3 year period and allows you to bring forward the following two financial years contributions.|
Transition to retirement strategy:
|Definition||Advantage under current rules|
|A transition to retirement strategy (TTR) enables you to start drawing an income from your super once you reach preservation age, ranging from 55 to 60 depending on your date of birth even if you are still working full time.||– Designed to supplement your income if you drop down to part-time work while you transition to retirement|
– Can be used in conjunction with a salary sacrifice strategy to grow your balance
1 Sources: Australian Financial Review, 13 Feb 2016, Federal budget 2016 super grab: five ways to protect your nest egg and Australian Financial Review, 1 Feb 2016, Transition to retirement pension changes won’t just hit the wealthy
Superannuation Contribution Caps for next financial year: 2016-17
The ATO recently announced that concessional and non-concessional contribution caps will remain unchanged next financial year (these will apply unless any changes are announced in the forthcoming Federal Budget). Consequently, the concessional contribution cap will remain at $30,000 for those younger than 49 at 30 June or $35,000 if aged 49 or more at that date. The non-concessional contribution cap will remain at $180,000 for everyone under age 65. This also means that the “bring forward” rule in respect of non-concessional contributions remains at $540,000 i.e. 3 years’ worth of non-concessional contributions.
Two less significant thresholds have been increased a little. The maximum super contribution base that is the upper limit for quarterly salary on which an employer is required to make mandatory 9.5% super contributions will increase slightly to $51,620 (previously $50,810). However, employers can, if they choose to do so, make employer contributions on quarterly salary in excess of the maximum base amount for high salary employees.
The threshold for entitlement to Government co-contributions to Super has also increased to $36,021 (previously $35,454). If a taxpayer’s adjusted taxable income is less than the threshold, the Government will make a $0.50 super contribution for each $1.00 of after tax super contribution an individual makes. The maximum co-contribution per individual is $500 i.e. you would need to make a personal contribution of $1,000 and have adjustable taxable income of no more than $36,021 to get the maximum benefit.
If a taxpayer’s adjusted taxable income exceeds $36,021, the maximum co-contribution reduces in proportion as adjusted taxable income exceeds that threshold and it cuts out completely at $51,021. That is, in respect of the 2016/17 financial year, if adjusted taxable income exceeds $51,021 (the corresponding figure for 2015/16 financial year is $50,454) then no co-contribution will be received.
The Federal Government Guarantee of Deposits
The Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding was introduced in October 2008, during the global financial crisis, in response to similar measures taken in other countries, and to address extreme funding pressures on banks and other authorised deposit-taking institutions (ADIs). In the lead up to this announcement, developments in international wholesale funding markets were restricting the ability of financial institutions, such as banks, both here and overseas, to access funding. This had potentially serious implications for liquidity and lending activity.
To address these pressures, the Australian Government guarantee arrangements were designed to promote financial system stability in Australia by supporting confidence and assisting banks, building societies and credit unions to continue to access wholesale funding at a time of considerable market turbulence. They were also designed to ensure that Australian institutions were not placed at a disadvantage compared to their international competitors that benefited from government guarantees on their wholesale funding. The original scheme was closed to new liabilities from the March quarter in 2010 and the amount guaranteed progressively wound down until the guarantee over the low level of remaining liabilities expired in late 2015.
The Guarantee Scheme also guaranteed retail (consumer)deposits with banks and other authorised deposit taking institutions, initially up to a level of $1 million. This was wound back to a new permanent cap of $250,000 per person, per institution, on deposits guaranteed under the Financial Claims Scheme with effect from 1 February 2012.
The Financial Claims Scheme is administered by the Australian Prudential Regulation Authority.
Sydney – Melbourne Air Traffic: busy and growing
CommSec report that the Sydney-Melbourne route is the third busiest air route in the world. The Sydney-Melbourne route is also a key measure of business activity. In the year to December, there were a record 60,072 flights between Sydney & Melbourne. Passenger numbers in the year to January hit a record 8.65 million.
The large number of people flying between our two largest and rapidly growing cities suggests that the case for a fast train link should be strengthening. Lower oil prices may make the business case more challenging, though that may prove to be a temporary factor. With the Prime Minister being a fan of rail perhaps this ambitious and costly project will finally happen over the next decade.
Australia’s Population – more than a quarter born overseas
The Australian Bureau of Statistics (ABS) in its recently released annual migration report revealed that the proportion of Australians born overseas is now 28.2% or 6.7 million people. This is the highest proportion of Australians born overseas in more than 120 years, a level not seen since the gold rushes of the late-1880s. While “the number of Australian residents born in India has almost tripled over the last 10 years and residents born in China have more than doubled in this time”, these two nationalities still rank behind the UK and New Zealand in terms of the percentage of the population born outside Australia.
Net overseas migration (arrivals less departures) has been running at nearly 200,000 per year for some time with around 2/3 on temporary visas and a bit more than 1/3 on permanent visas. Not surprisingly, the largest proportion come to NSW followed by Victoria, Queensland & W.A. This helps to explain why our roads seem to get busier and busier!
This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.