Ross Greenwood talks to Professor Robert Deutsche from the Senior Tax Council at the Tax Institute, about the impending changes to Superannuation from July 1.
Superannuation Tax Changes are coming soon
Ross Greenwood: Great day of your company here on Work.Life.Money right around Australia. Now as you’re aware, as of July 1 this year there are significant changes to the way in which you’re able to put money into Superannuation. Also, even the way in which people are going to be taxed in the future as well, especially at the higher end for those people with more money in Superannuation.
But again, the planning has got to happen right now. For goodness sakes, we’re almost in May, you haven’t got long to get yourself organised. I thought what I’d do is go to the Senior Tax Counsel at the Tax Institute, Professor Robert Deutsch, to try and spell out what these changes are, and exactly what people need to get their heads across before they get to June 30 this year.
Many thanks for your time as always, Robert.
Interview with Professor Robert Deutsch, Senior Tax Counsel at the Tax Institute
Professor Robert Deutsch: Pleasure, Russ.
Ross Greenwood: All right, there are big changes that are taking place, is there much? And of course, this almost represents a one-off opportunity for people to plan their Superannuation and maybe even their taxes to a certain extent to their benefit before June 30, because after that it all closes.
Professor Robert Deutsch: That’s right. June 30 is a big day this year particularly in the context of Superannuation. There are a lot of changes going through. I thought I might share with you a number of them, but four in particular that I think are important.
Firstly, we’ve got changes to the amount that can actually go into Super, and here we distinguish between what we call non-concessional and concessional. Non-concessional would be contributions that you can make where you don’t claim a deduction in your own hand.
Ross Greenwood: Over with savings, you have to take savings that you’ve already accumulated money in the bank or profits that you’ve made, or whatever it might be in.
Professor Robert Deutsch: Or inheritances that you might have received, all that sort of thing. The limits on that from the first of July will be 100,000 AUD per year. It is currently significantly more than that, and to be restricted to 100,000 AUD per year or 300,000 AUD on a three-year long forward basis.
Ross Greenwood: But that means if people have got the money before June 30 this year because that limit, currently 180,000 AUD or 540,000 AUD. If you had the money, and a lot of people don’t, but if you had the money, you could put 540,000 AUD in before June 30 and get it legitimately into your Super Fund. It’s a one-off sort of opportunity for people.
Professor Robert Deutsch: That’s correct, it is. It is, just remember that if you put 540,000 AUD and you don’t want to put it in before the end date.
Ross Greenwood: Yes, that’s right.
Professor Robert Deutsch: You put 540,000 AUD, assuming that you make no contributions in the current year, you can put 540,000 AUD in before 30th June. If you try and do it on the second of July, you’ll be restricted to 300,000 AUD. It is very much a one-off opportunity to make a non-concessional contribution.
Ross Greenwood: Okay, so let’s now go to the concessional contribution. These are effectively people who are putting in their compulsory Superannuation of nine and a half percent, or indeed, people who salary sacrifice to try and get a tax cut when they put in their Super and there’s limits on that also.
Professor Robert Deutsch: Exactly, and those limits are about to be further restricted. From one of July, you’ll be restricted to 25,000 AUD essentially per person to make a concessional contribution you need to give in a year. The current cap is higher, it’s a little bit more complicated because it depends on your age, but it could be as high as 35,000 AUD so that is also being paid back quite significantly.
Ross Greenwood: Therefore, given all that tax situation, you’ve got to make certain if you’ve got the spare cash, and again, that’s the whole criteria here. You have got this one-off opportunity to salary sacrifice up to 35,000 AUD if you’re aged over 50 by June 30 this year. Beyond that, it’s going to be cut back to 25,000 AUD. It actually means that people in the future will not be able to get as much money into their Superannuation Fund.
Professor Robert Deutsch: Correct, and that’s a deliberate government strategy in order to limit the amount of money that people have in Superannuation being beneficially taxed at Superannuation rights. That’s no accident, that’s exactly what the government is intending.
Ross Greenwood: Okay, so you said you had four points, where are the others?
Professor Robert Deutsch: Yes, the others are in relation to this 1.6 million AUD you people keep hearing about, and there’s really two different elements to this. There’s a 1.6 million AUD cap on the value of the assets that you can have supporting a pension. If the amount that you have saved 1.6 million AUD, you will need to pull that out of the Superannuation fund or switch it to an accumulation fund such that the income is being taxed at 15%.
Ross Greenwood: Okay, now we should explain this to people. It’s after 1.6 million. It’s still a large amount in Super. If you take that money out and put it into an allocated pension or a Lifetime Annuity, the tax on the earnings from those is zero. But what the government’s saying is if you’ve got more than 1.6 million, you got to that excess out, put it back into a normal Super Fund where the earnings will be taxed at 15%. It’s not as though the whole pot is going to be taxed at 15%. It’s just the annual earnings you make on that money and only on the excess.
Professor Robert Deutsch: That’s right. Absolutely. Now that’s one element of this 1.6. It is confusing because there is a different 1.6 million AUD which basically governs your ability to put money into Super as a non-concessional contribution. To indicate that earlier that you can put in 100,000 AUD per year after one of July 2017. If your balance in your Super Fund is already 1.6 million AUD, you cannot put anymore non-concessional contribution into that Super Fund.
Ross Greenwood: It’s an interesting one. Now, that’s something I haven’t picked up on. That’s an interesting one to spot there for people. Okay, so is that pretty much the changes over this period of time?
Professor Robert Deutsch: They’re what I would call the four big-ticket items.
Ross Greenwood: Professor Robert Deutsch is the Senior Tax Counsel of the Tax Institute. You can hear that right now is the time you’ve got to start to plan. Robert, we appreciate your time here on the program today.
Professor Robert Deutsch: Thanks so much, Ross.
Listen and Read other interviews by Ross Greenwood.
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06-09-2017 Interview of Dr. Martin Fahy, CEO, Australian Superannuation Funds Association (ASFA) titled ” What is Superannuation Guarantee (SG)? ”.
31-08-2017 Interview of Louise Davidson, CEO, Australian Council of Superannuation Investors titled ” Bringing in the big bucks ”.