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Super boost to retirement and tax strategies

The limits on how much you can contribute to super are set to rise from 1 July 2021.

Right now, the cap on how much you can make in tax deductible contributions (known as concessional contributions) is $25 000 per annum, however it has been announced this will increase by $2500 per annum to $27 500 per annum.

It is important to note that the $27 500, like the previous cap, includes any employer super guarantee payments and your own salary sacrifice contributions or personal contributions on which you have claimed a tax deduction.

While concessional contributions provide a tax deduction, they are also subject to a contributions tax of at least 15 per cent, however for those earning incomes where the tax rate is significantly higher than that, the tax benefit immediately, as well as the future tax treatment of funds in super, can make this a very rewarding strategy.

Non-concessional contributions are contributions made from after tax dollars, on which you do not claim a tax deduction, nor pay contributions tax.

While the limit on these contributions has been at $100 000 (four times the concessional cap limit) it is also set to rise from 1 July, increasing in line with the four times formula to $110 000 per annum.

If you are under 65, it is possible to “bring forward” three years’ worth of non-concessional contributions.  While this means that from 1 July 2021 a person could now contribute up to $330 000 using the bring forward rule, if you have already used up your $300 000 cap within the three year time limit you will not be able to top up the $30 000 increase.

For this reason, those considering using the bring forward rule may consider waiting into the new financial year to take advantage of the increased caps.

Legislation to lift the eligibility age to access the bring-forward rules from 65 to 67 has been passed in the lower house of Parliament, but has been delayed in the Senate, however if or when it is passed, this can also create additional opportunities to take advantage of preferential tax treatment in super.

These changes will present opportunities to further improve immediate tax positions, save for retirement in a more tax effective manner, and retain more funds in a concessionally taxed environment. 
 
In many cases this will also require a reset of contributions strategies which we will be addressing on a case by case basis for all clients as scheduled reviews are due.