The Government has announced some changes to its 2016 Budget proposals in relation to superannuation.
Please find below a summary of the proposed superannuation changes and how they affect Doctors in particular.
The $500,000 lifetime Non Concessional (i.e. after-tax) Contributions (NCC) Cap has been dropped. Instead, the Government has announced a reduction of the current annual limit of $180,000 to $100,000 from 1 July 2017.
This financial year you can still contribute $180,000, and use the bring-forward-rule to contribute $540,000. Going forward, the 3-year bring forward rule will remain as per the current provisions, but with the total amount thus reducing to $300,000. No NCC contributions will be allowed once the proposed $1.6 Million transfer cap has been reached.
Comment: This is good news for Doctors, as it still allows you to accumulate super savings via after-tax contributions, which typically happens towards the end of your career.
It also allows for forward planning and leaves the option to contribute a significant amount this financial year, which was not possible under the previously announced changes.
The reduction to a $25,000 CC cap will remain in place and commence from 1 July 2017.
The Government has confirmed that Division 293 tax on Super will be reduced to include individuals with salaries above $250,000 p.a.
Comment: Both measures disadvantage Doctors, as the low cap does not really allow for tax-effective salary sacrifice to super, compared to the much higher limits that were in place a few years ago. Given that Doctors start to accumulate super later than other professionals, I would expect Doctors to retire with less super going forward.
In addition, more (younger) Doctors will pay the additional 15% Division 293 tax, which will further negatively impact Doctor’s superannuation balances.
Proposed changes that have not been altered
The proposed $1.6 million lifetime cap on an individual’s total transfers to retirement income streams, has not been amended.
Comment: Doctors will be forced to plan their retirement funding much earlier, so they can build wealth in different tax-effective environments.
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