12 December 2016
The new super changes come into effect in July next year. In explaining them, the government has consistently claimed these changes impact very few people. And if you look across all super accounts, this is correct — if you define the group by the relatively small proportion of the population that makes large after-tax superannuation contributions.
But this is only part of the story. Super fund trustees face myriad costs to implement these changes — administrators need to adjust their systems, accountants and financial advisers need to make sure they have correct information to provide their clients with appropriate advice and guidance and so on.
What’s more, the ATO will now have more work to perform. All this additional red tape costs a lot of money to implement and these costs are shared equally among all super fund members.
The best thing for any investor to do in these circumstances is to understand as best they can the changes coming down the track.
Making personal after-tax super contributions has become much trickier now the new super changes have been legislated.
The complexity applies to anyone who was intending to make large after-tax contributions — officially called non-concessional contributions — between July 1, 2014 and July 1, 2020.
The situation occurs for two reasons:
- The government has put complex transitional rules in place, and
- A new rule has been introduced that further restricts how much money can be put into
Those aged under 75 have a restriction on how much after-tax money they can put into super. Those aged at least 65 but under 75 need to satisfy a work test before making any contributions. From July 1, 2017 this annual amount is $100,000 each year and before that date the annual threshold is $180,000 per annum.
Those aged less than 65 before the start of a financial year can spread three years of non-concessional contributions unevenly over a three-year period. You start a three-year period by making after-tax contributions of more than that year’s annual threshold. Knowing what point you’re at in a three-year period is very important.
I have tried to explain how the transitional rules work in the table. However, even this table needs some explanation.
Two key questions are: what can be contributed before July 2017? And what will occur as we transition into the new regime?
If your three-year period begins during the 2014-15 financial year, then you can make non-concessional contributions of $540,000 between July 1, 2014 and June 30, 2017.
If you contributed more than $180,000 in the 2016 financial year and in total less than $460,000 during the 2016 and 2017 financial years, then the most you can contribute during the 16, 17 and 18 financial years is $460,000 and nothing can be contributed until July 1, 2018.
However if you contribute more than $380,000 but less than $540,000 in 2016-17 year then you cannot contribute anything until the 2019-20 financial year.
The good news is that if you go above these contribution caps the ATO will give you the ability to take the money out of super with only a small penalty. (In past years excess contributions were taxed at the highest marginal rate.)
Total super balance
From July 1, 2017 anyone wanting to make non-concessional contributions will need to know their total super balance. A number of items are used in determining this amount:
- Total super account balances not being used to pay a pension
- Pensions — the market value of any of your account-based pensions and a special value is used for pensions paid from defined benefit super funds
- Other amounts transferred between funds
- A concession will affect payments you might receive because of court or legal proceedings after suffering a serious
Now here’s the tricky rule — after-tax contributions to super will only be permitted if your total super balance at June 30 in the previous financial year is less than $1.6 million and you can only contribute what will push your super balance up to $1.6m.
So the caps mentioned above are the maximum you can put in subject to your total super balance. Next year, super funds trustees are going to face myriad costs to implement these changes. In addition, the ATO will have even more work to perform. It’s going to cost a lot of money for everyone involved in the system.