Changes ahead for superannuation investors
Substantial changes to be made to Australian superannuation laws following the 2016 Budget announcement impacting investors.
Aimed at reducing the cost to taxpayers and addressing the equity of entitlements under the superannuation system, the changes include amendments to superannuation contribution caps, tax credits and tax rates.
For many investors, these changes may fundamentally change how they choose to allocate funds between their superannuation (including SMSFs) and non-superannuation investments.
After-tax contributions limit set to halve after 1 July 2017
Perhaps the most significant of the Government’s changes is the dramatic reduction in the ‘annual non-concessional contributions cap’. In simple terms, this change reduces the amount of non-concessionary (i.e. after-tax) funds that can be transferred to superannuation accounts from $180,000 to $100,000 per year. Accordingly, the maximum permitted transfer under the ‘catch up’ provisions (of 3 years’ contributions) also nearly halved, from $540,000 to $300,000.
Another significant change will be the prohibition of non-concessional contributions if you have more than $1.6 million in your super account.
These two changes will likely mean that many investors may find themselves unable to make significant additional contributions to their superannuation pot in future, particularly impacting those who otherwise might have increased their superannuation fund investments following an event such as the sale of a property, sale of a business or receipt of an inheritance.
Other significant changes to superannuation entitlements include:
- The introduction of a $1.6 million cap on transfers to ‘retirement phase’ (tax-free) accounts
- A reduction in the annual concessional (before-tax) contributions cap to $25,000
- A doubling of contribution tax to 30% for certain higher-income earners
For more information on the above changes and an outline of other changes to superannuation in 2017 and beyond, Superguide has put together a helpful guide for investors.
What does this mean for investors?
The effect of these changes on your personal superannuation entitlements will vary depending on your individual circumstances, although you might consider:
- Preparing for 1 July 2017 by making sure you understand the changes to superannuation
- Evaluating your superannuation investment strategy and consider whether there is action for you to take prior to 1 July 2017, including whether you make additional non-concessional contributions or establish an SMSF to take advantage of investing in the RateSetter Lending Platform with related tax benefits
- the allocation of your investments both inside and outside of superannuation, including the weighting of the RateSetter Lending Platform in your investment portfolio
- Speaking with your accountant or financial adviser about the changes to superannuation and your investment strategy
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.