Beware the Super Caps Traps

With 2013 having just arrived, if you haven’t already done so, now is as good a time as any to get your financial house in order and start preparing your finances for what will hopefully be a very prosperous new year.

This Christmas some of you may have been lucky enough to receive a Christmas bonus or half year bonus, others may be considering how to make the most of your financial opportunities, and others may simply be considering what to do with an unexpected windfall.

If this is the case, why not consider topping up your superannuation balance to help enhance the speed at which you achieve your retirement aspirations.

Despite the numerous changes to superannuation over the past several years, there is still no doubt that it is by far the most tax advantageous environment for you to park your money. However, if you are considering making new or additional contributions to your superannuation fund, you should be aware that the rules have recently changed.

Essentially there is no limit on how much you can contribute to your superannuation fund, but there are rules which limit the amount which will receive concessional tax treatment and these amounts have reduced significantly for some accumulators since 1 July 2012.

The table below outlines the current and expected amounts which can be contributed over the next several years.

You will notice that as of 1 July 2012, the concessional contributions cap, the cap which applies to contributions which are taxed at the concessional rate of 15% versus your potentially much higher marginal tax rate, has fallen from $50,000 in financial year 2011-12 down to $25,000 this financial year for those over the age of 50. This cap will typically apply to contributions such as your 9% superannuation guarantee payment, salary sacrifice contributions or pre-tax contributions made by those who are self-employed.

The cap for those who are under the age of 50 remains the same at $25,000 each financial year.

As you can see, for those over the age of 50, this is a substantial decrease in the amount of pre-tax contributions one can make and may catch some by surprise. In particular, those who are running transition to retirement strategies need to be very careful, as it could be very easy for you to breach your cap should you forget to do anything about your current level of contributions.

While there is a proposal to increase this cap for those over age 50 with super balances of less than $500,000, this proposal, if enacted, will not come into effect until 2014-15 financial year at the very earliest.

For those of you who may have recently sold your house and downsized or who may have come into a substantial cash windfall, perhaps from an inheritance, you will most likely need to be aware of the non-concessional contributions caps. While no changes have occurred to this cap, it is still important to be aware that for those of you over the age of 65, you do not have the flexibility to bring forward two additional years of contributions like those who are under the age of 65. So, if you are approaching this age, you should consult your adviser today to implement strategies which will allow you to take advantage of the higher non-concessional contribution rules.

If you have been thinking about making a substantial contribution to superannuation, make sure you speak to your adviser or contact a UGC financial strategist today and learn how you can better navigate the restrictive rules preventing you from a lifetime of favourable tax treatment.

For more information or to book your No Cost, No Obligation consultation today, call our office today on 03 8657 7640 or email [email protected].