Pre-budget speculation around changes to Australia’s current superannuation rules and tax concessions may be a cause for concern among some taxpayers.
However, there are ways to best position yourself now for any potential changes to the superannuation system. Here are three options for individuals wanting to prepare for upcoming changes:
Since there have been calls to change the taxation of contributions, now may be the ideal time to make the most of the current benefits by making additional contributions. The proposed changes would most likely affect high income earners who take advantage of the low tax rate on concessional contributions.
Concessional (before-tax) contributions are capped at $30,000 per financial year for those aged under 50 or $35,000 for those aged over 50. For those earning less than $300,000 a year, concessional contributions are taxed at 15 per cent. Those who earn over $300,000 a year are taxed at 30 per cent. The taxation of these contributions provides most people with a discount as the rates are lower than their top marginal income tax rate.
For non-concessional (after-tax) contributions, individuals under 65 can bring forward three year’s worth of non-concessional contributions, which are capped at $180,000 per financial year. This allows an additional $540,000 to be added to your superannuation balance before any potential changes are made to the caps.
Review pension arrangements
Individuals who are eligible to start a pension, that is, anyone aged 56 and over, may want to consider setting one up before budget night (May 10), as some changes can become immediately effective. The current transition to retirement (TTR) scheme allows individuals to access an income stream from their superannuation once they reach preservation age. This arrangement allows individuals to continue working full-time while accessing super funds and gaining from tax-free earnings on super.
Changes to the transition to retirement rules could see stricter limits on the amount of hours per week a person is allowed to be working if they would like to start a TTR or an introduction of tax on earnings. If you are considering starting a pension, it is worth seeking professional advice to take advantages of existing incentives.
Time asset sales accordingly
There has been discussion around whether changes to the capital gains tax (CGT) will influence the timing of asset sales, which is particularly important for individuals with a self-managed super fund. It may be beneficial to bring forward the planned sale of assets held outside of a super fund, if you are planning to contribute those profits into your super without incurring CGT.
Australia’s superannuation rules are incredibly complicated and everybody’s circumstances are different, so whenever possible, seek professional advice before making any decisions.