Since the Federal Budget in May 2016, the changes in superannuation have caused a bit of controversy and debate.

The changes mainly surround the areas of how much can be contributed into super and how much of your super can be rolled-over into a pension from 1st July 2017.

Summary of the major changes:

  1. The concessional contribution cap has been reduced down to $25,000 per person as from 1st July 2017, irrespective of age.
  2. The non-concessional personal contribution cap of $100,000 per annum reduced from $180,000. This reduction means you can contribute up to $300,000 in one year, using the 3 years bring forward rule, if you’re under age 65. Previously, it was $540,000.
  3. Each individual’s pension account now has a cap of $1.6m from 1st July 2017. Where a person has more than this amount, the excess must be left in the accumulation account. This means the fund’s earnings on $1.6m will continue to be tax-free, whilst the earnings above $1.6m will be taxed at 15%. Currently, 100% of fund earnings from a pension account are tax-free.

Rob, age 65 has $3m in his super already in pension mode that returns 5% p.a.

The tax outcome from 1st July 2017, is as follows:

  • The first $80,000 (i.e. 5% x $1.6m) will be zero taxed,
  • The balance of $70,000 (i.e. 5% x $1.4m) will be taxed at 15%, i.e. $10,500

At worst, earnings inside super attract 15% tax and 10% CGT, this gives you a far better outcome than holding assets outside of super and paying tax at higher marginal tax rates. For example, if the super fund's net income is $100,000, the income tax payable is $15,000 whereas earning the same amount outside super will potentially attract tax as high as $49,000, assuming you earn above $180,000

Next week we will be releasing Part 2; 4 ways to maximise your super return.