In recent weeks, the media has been overrun with commentary about what the 2016 federal budget may contain in relation to superannuation.
Over the past ten years a popular strategy employed by many Australians has been affectionately referred to as 'Transition to Retirement' (TTR) whereby persons still working are able to access between 4% and 10% of their superannuation account balance per annum. This is typically coupled with a salary sacrifice arrangement to replace the drawings from the fund and reduce the overall income tax liability.
Firmly in the headlights is the Transition to Retirement strategy with media commentary suggesting that this strategy may be in the firing line for change, or even abolition, in the budget.
We spoke with Lewis Clelland from Corso Private Wealth; he commented "whilst salary sacrificing will still be available, there is a very real chance the government will close the door to new participants of the pre-retirement TTR strategy thereby only allowing access to superannuation monies when a person has fully retired"
Additionally Lewis said "In the past the majority of changes to superannuation apply prospectively and any existing arrangements are typically grandfathered. Therefore clients who are currently undertaking this strategy should be able to continue to do so – of course there are no guarantees when it comes to government policy".
For those clients who have a Self-Managed Superannuation Fund (SMSF), it is possible to retrospectively place your fund into pension mode from the start of the financial year.
For those clients that are in retail superannuation funds, the task isn't quite as simple. The money must be physically transferred from the superannuation accumulation account into a pension account. The good news is this can usually be done quite seamlessly it just takes a little more time.
Legislation around personal Contributions to Superannuation also looks an area the government is targeting.
Under current arrangements, anyone earning over $300,000 pays 30% tax on contributions to superannuation. Last week, Fairfax media reported that the government could reduce this threshold down to $180,000. This will reduce the tax effective nature of superannuation for people in this 49% tax bracket, however even at 30% it still remains an attractive vehicle.
Another area flagged for change is the limit on how much can be contributed to superannuation in a financial year. Under existing arrangements the concessional contribution cap is $30,000 for anyone aged 48 or under as at 30 June and $35,000 cap for anyone aged 49 years or over as at 30 June.
In the same article, it was reported that this cap is likely to be reduced to $20,000 flat. Given the non-concessional (tax-free) cap is typically calculated at 6 times the concessional cap, there is a strong chance this will reduce down to $120,000.
The key message here is that the rules around getting money into superannuation are going to tighten, so now might be a good time to consider making some extra contributions.
What to do next?
It's important to note that there is no guarantee that any of the above will be legislated.
However if you, your friends, or relatives are:
- Over 55,
- Earn over $180,000,
- Currently Salary Sacrificing, or
- Have funds that might be better placed into superannuation
It would be a good idea to talk to us or a trusted Financial Adviser in the next week to see what strategies are appropriate for you.
If you are concerned about these potential changes, please feel free to contact our office on 5592 3644 to speak with one of our Accounting Team
General Advice Warning: The information in this article is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements discuss any considerations with a professional qualified adviser before making any financial decisions.