The time has come: from July 1, 2017, the federal government’s new superannuation rules will be in force and retirement savers will have to play between new goal posts.
For those doing last-minute planning in the lead up to the end of financial year, this means reviewing your contributions and strategy to make sure you’re getting the best value out of the current limits.
Experts are constantly reminding business owners that too many live in the moment at the expense of building savings for retirement, so here are eight ways to get ahead of the game.
1. Act quickly
Chief executive of the SMSF Association John Maroney tells SmartCompany that regardless of whether you run your own super fund or not, it’s important to act quickly on any changes to your retirement savings before the new rules kick in on July 1.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
While for some changes, DIY fund holders are able to signal their intentions in writing before moving funds, those with retail super accounts need to act within the next few days, because money needs to actually hit accounts by the deadline of June 30.
“I think most people are probably well prepared, but they really need to be acting as quickly as they can,” Maroney says.
2. Stay within the contribution limits
It’s important to understand what the concessional (pre-tax) and non-concessional contributions caps are both for this year and next year, because the goal posts are changing.
For the 2016-2017 financial year, individuals can contribute $30,000 a year in concessional contributions, or $35,000 if they are aged over 49.
From 2017-18, the annual concessional contributions cap will be $25,000 for everyone.
For the 2016-17 financial year, individuals can make post-tax contributions of up to $180,000 for the year, or $540,000 if you are using the three-year bring forward rule, advises the Australian Taxation Office.
From July 1, 2017, the non-concessional contributions cap is a flat $100,000 per year, provided the account’s balance is less than $1.6 million.
3. Get ready for the transfer cap limit
From July 1, the $1.6 million cap on the amount that can be transferred from a superannuation account into a pension account will kick in.
This makes the next two weeks a crucial time for double checking balances of super and DIY funds in pension phase, because any excess will have to be removed and a transfer balance tax paid. As part of the transition arrangements for this change, the ATO says if you have between $1.6 and $1.7 million in your retirement account after June 30 but remove the excess within six months, you won’t have to pay the penalty.
“If you’ve got money in a pension account [beyond $1.6 million], you need to move the excess out into an accumulation account. We would expect most people will be moving it back into the accumulation phase,” Maroney says.
“From 1 July 2017, your non-concessional cap will be nil for a financial year if you have a total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million in 2017–18) at the end of 30 June of the previous financial year,” the ATO advises.
4. Plan with your spouse
For the 2016-17 financial year, individuals can claim a $540 tax offset for contributions to a spouse’s super account if their spouse’s income is $10,800 or less.
From July 1, the ATO advises due to the superannuation reforms, this offset will broaden so that the offset can be claimed for spouses with an annual assessable income of $37,000 or less.
It’s important to remember the $1.6 million limit in pension funds applies for each individual, Maroney says, so couples should consider maximising their payments into super before June 30 to “top up” the balance of one member of the couple.
5. Personal super contributions deductions
Check whether you meet the conditions for deductions for personal superannuation contributions if you are self-employed, and know how this will change from next year.
In the current financial year, deductions can be claimed if you are self-employed and earn less than 10% of income from salary and wages.
From July 1, this 10% condition will be abolished, opening up the deductions to more self-employed individuals who may also hold a salaried role.
6. Think ahead for the five-year carry-forward rule
Those planning ahead should take note of changes to unused concessional contribution amounts, which will kick in from 2018. While not on offer this year, from July 1, 2018, individuals will be able to “carry forward” any part of their concessional contributions limit they have not used and access these on a five-year rolling basis.
7. Be aware of changes to “Transition to Retirement” pensions
Any individuals currently using a ‘transition to retirement’ scheme should review what the changes to the tax free-status of these arrangements mean for them. More information can be found on the ATO’s website.
8. Pay yourself and get advice
Small business owners are regularly warned their community as a whole doesn’t do enough planning on exit strategies and retirement savings. A recent survey of SME owners by Suncorp suggests only one in five business owners actually pay themselves super.
The experts recommend you look beyond the wealth you’re building into your business and think about other forms of support for your retirement early on when building your company.
If you’re unsure of the next steps, the best thing to do is ask, says Maroney.
“Get specialist advice — and if you can’t get onto your advisor [right away], there’s also information on our website and the ATO website.”