Reduction in Concessional Super Contribution Limits from 1st July 2017
As you may well be aware from 1 July 2017 there have been a number of changes to superannuation. One change that may impact you is the reduction in the concessional contribution limit to $25,000. Concessional contributions include superannuation guarantee contributions from employers (the compulsory 9.5%), salary sacrifice contributions and personal contributions you make and intend to claim as a tax deduction. If you have exceed $25,000 in past years and not reviewed/reduced your contributions since 1/7/2017 I suggest you do this.
If you are salary sacrificing from an employer to your superannuation another change to note is that from 1/7/2017 you are allowed to make personal contributions (instead of a sacrifice) and claim these in your tax return. This is another change you may wish to consider. The advantage of a salary sacrifice is that you receive an immediate tax benefit via a reduction in tax deducted from your pay, it ensures regular contributions are made and not forgotten and there is no addition paperwork to be completed in your tax return. Note that in order to be able to claim a personal super contribution a form must be completed and returned to the super fund and you must remember to claim this in your tax return.
In my opinion a salary sacrifice remains the preferred way to contribute if you are employed. However in some situations a personal contribution may be preferable. These situations may include where you receive irregular income from employment such as bonuses or commissions. For example if you were a real esate agent. Another situation in which a personal contribution may be preferrable is if your employer has an irregular pattern of contributions. We have seen this as a problem where for example super is deducted from your pay in April but not paid to the fund until July. A personal contribution gives you more control over the monitoring and timing of these contributions.
One final word on these changes from a strategic and retirement perspective, in the past you have been able to delay further contributions to your super until you are closer to retirement. This helps reduce the legislative risk of changes to the superannuation system. Given the changes delaying contributions to super may now mean you are unable to build a sufficient balance in your super for retirement. It must be remembered that despite the changes superannuation is by far the most preferrable vehicle for retirement savings, due to the significant tax advantages. This is the reason behind the restrictions on contributing to it. The government has also now set a limit of $1,600,000 per person where some of the tax advantages are removed. However in most cases contributions of $25,000 per annum from your mid forties will not be enough to get you anywhere near this limit. If you feel you may need to review your plans or receive further advice on these changes feel free to make contact.