In the world of superannuation, a few changes have taken place over the past month that can help to boost the balances of women in the lead up to June 30.
The concessional contributions cap will increase from $25,000 to $27,500 from July 1.
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 individuals, particularly women who are on the wrong side of the gender gap when it comes to retirement savings, 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%.
The non-concessional contributions cap will increase from $100,000 to $110,000 from July 1.
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 60s. 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 July 1, 2021, you would be potentially in a better position if you wait till after June 30 to use the ‘bring-forward’ non-concessional contributions as prior to June 30 you could contribution $300,000 and after July 1, 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 $1.6 million per person. After July 1, this will increase to $1.7 million.
So, if you are contemplating retirement and wish to start drawing an account-based pension from your fund, it may be wise to get advice to determine if it is appropriate for you to wait to next financial year to commence your account-based pension.
A common mistake that people make relates to the ‘record date’ for superannuation contributions, which is the date that funds are actually received in your superannuation account, and not when they are deposited.
For example, if you transfer funds from your personal bank account to make a contribution on the June 30, and the funds are deposited and cleared in your Superannuation Fund on July 1, you will have missed having the contribution counted in the current financial year.