Australians largely unaware of new super cap deadline and opportunity
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Many people could miss out on a lucrative, final opportunity to top up their superannuation balance before non-concessional caps are reduced after 1 July 2017.
A significant proportion of eligible Australians are unaware of this deadline, and don't properly understand the proposed changes in how their super assets will be taxed, according to Michael Hutton, head of wealth management, HLB Mann Judd.
"It's certainly a major discussion point that we've been having with our clients, and it's not one that I think has really taken shape yet [or] been digested as an opportunity. It's under the radar--the government's definitely not putting it out there," Hutton says.
Latest proposed super rules
In September 2016, the federal government announced it is proceeding with its plan to introduce the following super measures:
• A reduction of the concessional contribution cap to $25,000,
• A $1.6-million limit on funds that can be transferred into pension phase,
• Removal of tax exemption on super funds paying transition-to-retirement pensions,
• A reduction of the assessable income threshold to $250,000, from $300,000, with concessional contributions to be taxed at 30 per cent instead of 15 per cent.
In addition, the proposal to carry forward unused concessional contribution caps over five years, for individuals with less than $500,000 in super, has been deferred until 1 July 2018.
Hutton believes the government may be actively hoping individuals don't put more money into super ahead of the deadline, preferring to collect higher marginal taxes to prop up an unhealthy national budget.
"Everything going into super, [the government] thinks it's going to a tax haven. And I don't think people recognise how good an opportunity it is," he says.
From 1 July 2017, super contributions will be subject to an annual non-concessional cap of $100,000, or $300,000 brought forward over three years. This will only be available to those with a super balance of less than $1.6 million.
Under the current legislation, an annual after-tax contribution limit of $180,000 applies, along with the opportunity to bring forward another two years of this limit.
This means an eligible individual could contribute as much as $540,000--or $1,080,000 for a couple.
"People do love a deadline. The last time we saw an opportunity like this was back in 2007, when the Howard government introduced the one-off opportunity for individuals to contribute up to $1 million into super under the concessional arrangement," Hutton says.
Beg, borrow or steal?
He suggests some people may even borrow to do it, though stops short of recommending this as a good strategy.
"We'd very rarely recommend they do that, it can be very problematic ... but I do think there'll be a lot of people who'll look at their finances."
However, he believes many people can--and should--find a way to capitalise on the opportunity if possible.
"People somehow, some way ... [capitalised on] that million-dollar limit. I think this $540k is going to be similar. I think people will scramble and save to get this money into superannuation."
As an example, he refers to one client who is selling a house in the second half of 2017.
"He might borrow short term, to put the money into super, and then repay the borrowing once he's sold the house," Hutton says.
"Some people might bring forward the sale of a holiday house or other asset ... other people might have a share portfolio they might use to make an in-specie contribution into super.
"But once 1 July 2017 hits, if the new rules go through, and if you've already reached that $1.6-million cap in super contributions, you won't ever be able to make another non-concessional super contribution."
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Glenn Freeman is Morningstar's senior editor.
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