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Archives for Superannuation

3 Key Changes for the 2016 / 2017 Federal Budget

Changes to superannuation legislation was a key focus of the 2016 / 2017 Federal Budget.  The purpose of this article is to help explain some of the key changes and how they may apply to you.

  1. Changes to concessional contributions

Concessional contributions are contributions made into superannuation for which a tax deduction is claimed; such as superannuation guarantee contributions (SGC) or salary sacrifice contributions.

From 1 July 2017, the concessional contributions cap will be reduced to $25,000 pa (indexed) for everyone, regardless of age.

On the positive side, individuals who have total superannuation savings of less than $500,000 who do not fully utilise the cap each year can carry forward the unused cap on a rolling five-year basis starting from 1 July 2018.

The cap is currently $30,000 per annum under age 50 and $35,000 for 50 and over.

  1. Reduction of the non-concessional contributions (NCC) cap

Non-concessional contributions are made from after-tax money and are contributions for which no tax deduction has been claimed.

A cap of $100,000 per person will apply. If the individual is under age 65 the 3-year bring forward rule can be utilised, thus contributing up to $300,000.

For the 2016-17 financial year the existing limit of $180,000 per annum, or $540,000 3-year limit, can still be used. In order to access the full $540,000 limit, however, the individual must fully utilise this amount this financial year otherwise transitional bring forward rules will apply. If an individual has not fully used their bring forward limit before 1 July 2017, the remaining bring forward amount will be reassessed to reflect the new annual caps.

If the individual’s super balance is $1.6 million or greater then no further non-concessional contributions can be made. This restriction only applies to non-concessional contributions.

Previously individuals could make non-concessional contributions of up to $180,000 pa into their superannuation, with the ability of bringing forward two years’ allowances (i.e. $540,000 worth of contributions in total) if the individual is under age 65.

  1. Introduction of a pension transfer cap of $1.6 million

A $1.6 million transfer balance cap on the total amount of super an individual can transfer into retirement accounts will apply. The cap will apply to current retirees and individuals yet to enter retirement.

Retirees with balances above $1.6m will be required to reduce their balance to the cap by the effective date by transferring any excess back to accumulation or withdrawing the excess from super. If not transferred, an excess tax will be applied at 15% initially and 30% for subsequent breaches of the cap.

The cap will index in increments of $100,000 in line with CPI.

There was previously no limit on the amount individuals could accumulate in pension phase.

A summary of all the reforms and when each measure will take effect from is provided in the table below.

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Are you confused about these Superannuation budget changes? For your free initial consultation contact us today, one of our friendly advisers would be delighted to speak with you.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s Individual objectives, financial situation or needs.  Before acting on anything in this article you should consider if it is appropriate for you, having regard to your objectives, financial situation and needs.

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The Value Of Time

If you study any formal course in finance it won’t be long before you are faced with the concept of “time value of money”.  What it means is that there is a cost to the delay in receiving money, and so we say that “a dollar received today is worth more than a dollar received in the future”.

There are two reasons why it is better to receive a dollar today than a dollar in the future.  First, if you receive a dollar today, then you can invest it and get an additional return.  Second, there is always a risk that you will receive less than promised, or nothing at all.

For more numerate readers, that you might consider accepting 97 cents now, rather than $1.00 in a year time.  If with certainty, you could earn 3 cents in interest over the year, then (taxes aside) you would be just as well off taking the 97 cents now, as waiting a year for your $1.00.  If you could pay off a loan, say a credit card, with the money received now, you might be as well off taking 85 cents now, rather than wait a year and pay credit card interest.  Essentially, the more risk you might not receive the money in the future, and the greater the return you can gain from investing the money now, the less you would be prepared to accept now.

So in finance, time has a clear monetary value and as touched on above, the methods of working out that value are well-established.  But what about other ways of putting value on time?

Applying the time value of money concept, it’s quite clear that getting something signed off or delays in finishing a project can be costly.  That’s probably obvious when considering large constructions – delays in finishing a big hotel (for example) mean there is a lot of money sitting around earning nothing – but it applies just as much to day to day activities that we all undertake at work.

When the tax office stuffs you around, when the local council continues to vacillate over an approval, when legislative changes or indecision prevents you from making a choice, all of these things create risk and delay.  They stall the receipt of revenue, they create project risk and the burn time you could be spending on other things.  Sometimes these delays and problems are so bad that they involve employing additional people.  Overall, the delays themselves make it more expensive to do business.

Perhaps the monetary side of that is obvious, but there are personal and social costs too.  Not building an efficient road network or a high speed rail link between Sydney and Melbourne steals people’s time.  Small amounts each trip perhaps, but over one’s life, time that adds up – time that could be spent with the family, time spent fishing or at golf, time spent blowing the froth off a few with good friends.  Perhaps that sounds trite, but I put it to you that those people who create delay, who don’t do their jobs well, who don’t care, who give you the run-around, who are attending to their personal stuff while charging you, who go on strike during your holidays, these people are stealing your life.

In an era where for many of us work is demanding, and responsibilities of all types high, it’s time we started to take a stand on time-thieves.  It’s time business recovered some of the ability to select and fire employees, to insist that Government departments and officers are held accountable, simply to enforce the social contract implied through employment and regulation.  Failure to do this means business operators will have to change more and more for producing the same goods and services, and those that cannot will simply drop out.

That’s what you can look forward to if the current combination of individualism, workplace bias, and allergic reaction to productivity improvements is not addressed.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.

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GOVERNMENT CO-CONTRIBUTION – DON’T MISS OUT!

Time is running out for you and your family members to take advantage of the Government Co-Contribution initiative in the current financial year.

Basic eligibility criteria is that a tax return is lodged, at least 10% of total income comes from employment or carrying on a business, and you are less than 71 at the end of financial year.

If you make a personal after-tax contribution (i.e. non-concessional or undeducted contribution) to superannuation, you may qualify for an additional contribution directly from the Government. Essentially, the Government will match on the basis of 50c for every dollar of eligible contributions you make to superannuation up to a maximum co-contribution amount of $500 (i.e. $1,000 contribution to receive $500 government co-contribution).

The full super co-contribution is available if your total income is less than $35,454. The maximum co-contribution reduces by 3.33 cents for every dollar earned over $35,454 reducing to zero when your total income is $50,454 or more.

There is no need to claim the Government’s co-contribution. Provided you qualify and submit a tax return, the Government will automatically forward the co-contribution amount to your super fund.

To find out how the co-contribution works and who is eligible to receive the government’s co-contribution to superannuation, click here.

If you want to take advantage of the Government co-contribution initiative in the current financial year, you will need to make a non-concessional contribution to super so that it is received and processed by the fund prior to Thursday, June 30, 2016.

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EOFY – Superannuation Contributions Check

Superannuation is still one of the most tax effective places to house your retirement funds.

Have you thought about contributing to superannuation?

Concessional contributions are contributions made into superannuation for which a tax deduction is claimed; such as superannuation guarantee contributions (SGC) or salary sacrifice contributions.

At the present time the cap is between $30,000 and $35,000 pa depending on your age, and this is scheduled to reduce at the beginning of the 2017/18 financial year if the 2016 budget becomes law.

Your employer contributes at least 9.5% per annum to your chosen fund, but working individuals under the age of 75 can contribute to their fund by way of salary sacrifice, to bring the total annual contribution up to the cap.

You need to talk to your employer to make a salary sacrifice arrangement but you will first need to calculate how much salary to sacrifice each pay period so that you still have sufficient for living expenses.

Salary sacrificing will reduce the tax that you pay personally and the greater benefit is for the higher income earners. For example a person whose top marginal tax rate is 19% plus Medicare will receive a tax benefit of 4% plus Medicare – i.e. the difference between the marginal tax rate and the contribution tax rate in super, whereas someone who earns $75,000 will gain a tax benefit of 17.5%.

Did you know that you can also make after-tax superannuation contributions?

If you have accumulated money that you have no immediate need for and would like to add to your retirement benefit, it is also possible to contribute this to superannuation. It is not taxed upon entry to your superannuation account, but once the contribution is made you will lose access to that money until you meet a ‘condition of release’. The most common condition of release is reaching age 60, but there are restrictions on how much you can withdraw until you are fully retired.

A lifetime cap of $500,000 (indexed) will apply to non-concessional (after-tax) contributions and will include all after tax contributions made on or after 1 July 2007 with immediate effect from 3 May 2016. This is subject to legislation of the budget.

Any after tax contributions made before budget night (7.30pm on 3 May 2016) that exceed this cap, may remain in superannuation without penalty.

Please note: Some superannuation information is subject to legislation of the recent Federal budget, so are government proposals only at this stage, and not yet law. The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs. If you would like to recieve more tailored advice, please contact us today.

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