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Super has changed
At one time superannuation in pension mode was taxed at 15 per cent. I have always regarded the tax-free status of pension mode superannuation as a bonus that Peter Costello handed to us. One day it might be taken back. I fully realise that many people with super savings will be hit hard particularly as interest rates are now so low. But at least there is certainty this time around, because the effect of the Morrison policy is not that different to the Chris Bowen plan.
What really changed the game are the restrictions on superannuation contributions.
There is a lifetime cap of $500,000 on tax paid funds (non-concessional contributions) that can be invested in superannuation and that cap cut in at 7.30 pm on May 3. Those who were waiting until just before June 30 to inject large sums have now missed out.
Those who already have larger sums in superannuation have a $1.6 million capital limit on the money that can be earned tax-free. I assume that if you have $1.6m in your funds, then all the earnings will be tax-free. If you have $3.2m in superannuation funds (twice $1.6m) fund, then half those earnings will be tax-free and the rest taxed at 15 per cent.
The practical outcome - the money will need to go in what appears to be a tax-free account, or it can be withdrawn.
This will need clarity and I am sure there will be more information. In addition tax-deductible contributions are limited to $25,000 per annum. The contributions tax of 30 per cent, which previously cut in at $300,000 income, will now cut in at $250,000.
If you want to try and accumulate a worthwhile sum in superannuation then my advice is that if you possibly can take up your contribution entitlement each year, do so. I realise this is not always easy to do because of the need to pay off mortgages, health costs, school fees etc., etc.
Do make a plan and allocate more to your Super. You can also looks at other options like Negative Gearing and investing in a larger family home. For any discussion on your specific goals and requirements, please contact us.
