In the world of superannuation, a few key changes have taken place over the past month that will impact superannuation strategies in the lead up to 30th June 2021 and beyond.
Increase in concessional contributions cap after 1 July 2021
The concessional contributions cap will increase from $25,000 to $27,500.
Contributions included in this cap include your mandated Superannuation Guarantee paid by your employer, any salary sacrificed contributions via your payroll, or any voluntary contributions made that you notify an intent to claim a tax deduction for.
Overall, this is good news as it means people can contribute slightly more to superannuation moving forward and benefit from a lower tax rate of 15% paid on the contribution compared to your marginal tax rate which can be as high as 45%.
Increase in non-concessional contributions cap after 1 July 2021
The non-concessional contributions cap will increase from $100,000 to $110,000.
Contributions included in this cap are any savings or personal assets that you have which already have had income tax paid – i.e., these are ‘after-tax’ savings or assets.
A key point to consider here is if you are in your early sixties. As of writing, the ‘bring-forward’ rule that allows a person to bring forward three years of non-concessional contributions is available to people prior to their 65th birthday. There is legislation before the Commonwealth Parliament to change this to age 67. However, this has not been made law yet.
For example, if you are aged 64 but have your birthday after the 1st July 2021, you would be potentially in a better position if you wait till after 30th June to use the ‘bring-forward’ non-concessional contributions as prior to 30th June you could contribution $300,000 and after 1st July this could be $330,000.
Timing is key here and it would be ideal to seek advice to make sure you don’t breach any contributions caps.
Increase in the transfer balance cap
If you are about to retire, your Superannuation Fund will change from ‘accumulation’ phase to ‘pension’ phase.
In ‘accumulation’ phase, all concessional contributions are taxed at 15%. Income derived from your Superannuation assets are taxed at 15%. Any capital gain is taxed at 15% or 10% if the asset was held for more than 12 months.
In ‘pension’ phase, ALL income and capital gains are TAX-FREE up to a balance of $1.6million per person. After 1st July this will increase to $1.7million.
Thus, if you are contemplating retirement and wish to start drawing an account-based pension from your Superannuation Fund, it may be wise to seek financial advice this year to determine if it is appropriate for you to wait to next financial year to commence your Superannuation account-based pension.
Other changes
There are several other more details changes occurring in the world of superannuation. For simplicity, I have not listed them all here.
Act now!
Don’t leave it till June to start your pre-30 June tax and financial advice planning. I review all my clients’ situations in the month of May to ensure we have enough time to implement any strategies before 30th June.
A common mistake is people are not aware that the ‘record date’ for superannuation contributions is the date that it is received in your Superannuation Fund. For example, if you transfer funds from your personal bank account to make a contribution on the 30th June and the funds are deposited and cleared in your Superannuation Fund on the 1st July, you will have missed having the contribution counted in the 2020/2021 financial year.
Getting appropriate advice early from a Financial Adviser will give you time to consider and implement strategies that will achieve a better outcome for your financial future.
Andrew Zbik
Senior Financial Adviser
Creation Wealth
0422 038 253
andrew.zbik@creationwealth.com.au