New super thresholds add extra $60k bang

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An extra $60,000 in non-concessional contributions can be made if advisers and their clients wait until the 2014/15 year to trigger the ‘bring forward’ rule, following an ATO announcement.

The Australian Taxation Office has just released the super thresholds that will be applied from 1 July this year, as reported in Wealth Professional yesterday.
Part of the threshold changes will see the concessional contributions cap being increased from $25,000 to $30,000.

But Michael Hallinan, Special Counsel Superannuation at Townsends Business and Corporate Lawyers, says the flow on effect of this small increase means far larger increases at the non-concessional end, depending on if and when advisers and their clients decide to trigger the bring forward cap.

As it stands, a person can contribute six times the concessional cap to the non-concessional cap. They can then bring these non-concessional payments forward and contribute the value of three years’ worth in one hit.

Under the old thresholds, this would mean a bring forward payment of $450,000, however with the new ones a person could bring forward up to $540,000.
Chris Cornish, principal financial adviser at Avant Financial Services, is delighted by the news.

“It’s really significant – I find it exciting,” he said. “It’s going to enable people to get more money into superannuation and salary sacrifice more. The majority of my clients wish to do this.”

Special Counsel Hallinan said advisers need to consider now what strategy is best for their clients.

In the first strategy, the bring forward is triggered in the 2013/14 tax year and the maximum contribution of $450,000 is made. The investor can then make the next payment in 2016/17, up to the new maximum non-concessional contribution of $180,000.

However in the second strategy, investors will be able to contribute an extra $60,000 by waiting until the 2014/15 tax year to trigger the bring forward. This means they would apply the current $150,000 maximum non-concessional contribution this year, and then trigger the bring forward (with the new increased threshold) to contribute $540,000 in 2014/15.

“If the objective is to maximise non-concessional contributions then strategy B is the better strategy,” said Hallinan.
 
 
Contribution strategy
 
2013/14
 
2014/15
 
2015/16
 
2016/17
 
Total Contributions over the 4 year period
 
Strategy A
 
$450,000
 
NIL
 
NIL
 
$180,000
 
$630,000
 
Strategy B
 
$150,000
 
$540,000
 
NIL
 
NIL
 
$690,000
 
 
SEE MORE:

Concessional contribution cap must keep on rising: SPAA

Bring back the LISC, says SPAA

Five minutes with...Maria Dyson, Omniwealth



 
  • Brett on 28/02/2014 10:11:55 AM

    While I do not expect the government to keep the concessional contribution at $25k, we haven't had the 2014 Federal budget yet.
    Don't forget that the previous government froze indexation for a year or 2.

  • alleycat on 28/02/2014 12:20:30 PM

    I would hope that if the Federal government wants people to save for their retirement and don't want to fund future age pensions to the same degree, then concessional caps need to be lifted in the May budget.
    The most workable option would be to increase the concessional caps for those under 55 to $50,000 p.a and those over age 55 to $100,000 p.a.
    The tax revenue alone would assist those who are unable to contribute to those maximum contribution caps and possible remove those who otherwise may have received some government support.

  • Innocent Observer on 28/02/2014 2:15:30 PM

    For the benefit of my clients (and self-interest) I welcome an increase in the caps.

    However if it's a sustainable and equitable tax/super system that we're after, simply raising the cap isn't going to do it. I know that many won't agree with me on this, but as advisers who work within the tax/legislative framework every day, we (should) know the ramifications and true cost of these rules on the public purse. I'm not saying we shouldn't have a transitional arrangement, but we should exercise a bit of prudence.

    Also, in my honest opinion there's something not-quite-right about being able to save clients who are on an average-ish (~ $70 - $80k p.a.) over $10k p.a. through some simple tax arbitrage....while someone in an identical position (who, encouraged by the Industry Super advertisments avoid seeking advice) miss out completely.

  • Pat on 28/02/2014 2:42:06 PM

    Innocent Observer, my opinion, for what it's worth:

    1. We need to have a clear understanding of the 'cost' of greater tax concessions afforded to aspects like super contributions:
    a. What impact does more money saved in the super system have on bank deposits and, therefore, the cost to banks of obtaining capital? What is the flow-on impact to mortgage rates?
    b. What is the impact to the cost of capital to corporate Australia by having a growing pool of capital they can access;
    c. How much capital is available to infrastructure investment because of the growing pool?
    d. What is the long term impact on pension liabilities?

    2. As advisers, we hold no magic bullet that is not available to everyone. We don't save clients money - we give them information, that is somewhat readily available, to enable them to structure their position to create that saving. An industry super fund member has equal access to the information. If they choose not to outsource that access via a fee to an adviser, that is their choice.

  • Let's Get Real on 28/02/2014 3:55:30 PM

    Innocent Observer I would advocate for a reduction of the Aged Pension assets test to save the country some money long before I would suggest increasing concessional caps is not fair. Getting welfare with $1m in the bank.......thats harder to swallow in my humble opinion.

  • alleycat on 3/03/2014 10:25:48 AM

    Guys, I'm not sure what some of you are on. It's been said for a long time, the government cannot sustain the growing dependence on the age pension, which is why they have on both sides of the political divide recently suggested increasing the pension age.

    Here's a thought bubble, give everyone who can, a tax deduction of 30.0% on personal contributions. Those on 20.0% will be better off and so will those on 46.5%.
    Here's the thing the government picks up 15.0% contributions tax on the way in and up to 15.0% on investment tax, so what have they given away ? The answer is very little even if the investment tax was reduced to 5.0%.

    It's a no brainer and what it would allow is for everyone who participates in the process to benefit.

  • Pat on 3/03/2014 11:27:56 AM

    alleycat, how does one get a tax deduction for x%? We should just retain the LISC. We already have the Div 293 tax that covers very high income earners.

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