Increase in allowable super contributions a welcome change
It is now likely that all taxpayers other than those aged 60 or above will be able to claim a larger tax-deductible super contribution next tax year. The only uncertainty is the possibility of further changes in the budget. Given the government's election promise not to make detrimental changes in its first term, this is most unlikely.
The Australian Taxation Office has announced that, under normal indexation arrangements for superannuation caps, from July 1 this year, the annual tax deductible contributions cap for all taxpayers will increase by 25 per cent from $25,000 to $30,000. People aged 50 to 59 in the next tax year will also be eligible under legislation already enacted for a further $5000 deduction and a cap of $35,000 annually. Also, $35,000 is the maximum contribution already permitted this year for taxpayers aged 60 or more.
While much lower than the maximum deductions permitted before the previous government was elected, these increases are a step in the right direction. They provide limited scope for taxpayers with relatively small superannuation balances to make additional catch-up contributions later in life.
Given government warnings of a tough budget, it's unlikely there will be further increases in the tax-deductible contributions limits in the short term. This means that taxpayers will have to use the available concessions to the best advantage. The drawback for people aged under 50 is that the $5000 increase in the available deduction will still involve diverting more of their assets to superannuation, which is tied up untouchable until at least age 60.
The time frame for accessing additional super contributions is much more favourable for those aged 50 or more because many of them are able to access their super accounts at age 55. Even those born after July 1, 1964, who have to wait till 60, have a reasonably short wait to be able to start accessing their super.
Older taxpayers able to access their super as a pension immediately or within a short time frame will also benefit from the increase from July 1, this year, in the maximum annual non- concessional contribution from $150,000 to $180,000. By bringing forward three years' contributions, taxpayers aged less than 65 may be eligible to contribute up to $540,000 to their fund after July 1. Apart from being under 65, to qualify for a contribution as large as this requires previous annual contributions within the $150,000 limit.
All things considered, these changes will increase the options to boost superannuation accounts to provide incomes in retirement. One negative change, however, is that pension income streams started after January 1 next year will receive less favourable treatment under the social security income test than current income streams do. This issue will be considered next week.