Financial Year Changes to be Aware and Take Advantage of

July 14, 2017 3:13 pm

Hi all!

The new financial year has brought about some changes and new opportunities that I wanted to make you aware of, such as:

The Concessional Cap (CC) for superannuation contributions has been reduced to $25,000 for all

  • The previous caps of $30,000 or $35,000 depending on age are no longer in place. Those of you who have been making salary sacrifice contributions should
    review your contribution strategies and the arrangements you have made with you employer to ensure you don’t exceed the reduced CC cap in 2017/18.
  • When doing this, all CCs to be made in 2017/18 need to be taken into account. This includes salary sacrifice, SG and potentially now personal deductible
    super contributions (new option). It is also important to consider any bonuses or other lump sum entitlements the client may become entitled to
    upon which SG will be payable.

The removal of the ‘10% test’ now enables clients to make personal deductible super contributions (PDCs) regardless of your employment status

  • This change has enabled certain people to make PDCs (and potentially target the CC cap) where it was previously not possible.
  • Key examples include where:
    • An employer does not offer salary sacrifice.
    • People switch from being self-employed to employed during the course of the year. Under the old rules, it is likely they would have failed
      the 10% test due to their employment income.
    • Residents for tax purposes are working overseas for a foreign employer and their employer can’t or won’t contribute to an Australian super
    • If you receive bonuses or redundancy payments and wish to make CCs but there is no existing salary sacrifice arrangement in place to enable
      them to do so.
  • Additional options for you who are already making salary sacrifice contributions now exist:
    • You can continue with your salary sacrifice
    • switch to making PDCs
    • or opt for a combination of both.

$1.6m (pension) cap – Excess transfer balances

Some of you may have had an excess transfer balance amount recorded in your transfer balance account (TBA) on 1 July this year. This may have been due
to a range of reasons, such as market returns pushing them above the $1.6m cap in the lead-up to 30 June. Where an excess is recorded, you will need
to reduce your TBA by making a commutation, either back to accumulation or out of the pension. The commutation required will be calculated
based on the amount in excess as at 1 July, as well as any notional earnings that have accrued up to the time of commutation. Excess transfer balance
tax may also apply.

Pension payments and/or a reduction in the value of your pension due to market movements will not address an excess transfer balance, as these do not result
in a debit to the TBA. If you were in excess of the $1.6m on 1 July by no more than $100,000 need to make the required commutation by 31 December 2017
under the transitional rules to avoid excess transfer balance tax.

Spouse Contribution income threshold increased significantly

This can help you build up your spouse’s super balance and give you a tax rebate of up to $540. For the full rebate, the receiving spouse can
now have an income of up to $37,000 and a part rebate up to $40,000. However, two additional requirements now apply for the receiving spouse:

  • they can’t have exceeded their concessional cap for the relevant year
  • they can’t have reached or exceeded the balance transfer cap of $1.6m

As always, please feel free to contact us to arrange a time to see how your current strategy may be impacted by these changes.