Nearing or exceeded the $1.6m Super Cap? Now what do you do?

Well, there has been significant changes to the super system over the last few months and getting your head around it all is difficult.  You’re most probably feeling a little ripped off, uncertain what changes will come and most probably you are sceptical about what might happen in the future and whether super is a viable investment option.

It’s like the rug has been pulled from underneath you!

The new norm is here.  There has constantly been changes with super, firstly trying to make it simple and now the opposite, making it more difficult.  The only certainty is that there will be further changes to come.

However, Super is still the best investment structure going around!  Yes, that’s right it’s an investment structure with investment options available under that structure.  No different than a Company or a Family Trust, they all have their tax pros and cons.

So what do you do if you are approaching or have exceeded the $1.6m super cap?

  • If you are approaching the $1.6m cap you are still able to max out your pre-tax contributions (known as concessional contributions) and also your after tax contributions within limits.  Please refer to my Super Changes Cut Through ebook for more details, link provided at the bottom of this post.

 

  • If you have exceeded the $1.6m cap you will no longer be able to make after tax contributions.  However you will still be able to max out your pre-tax contributions.  Even if you have exceeded the $1.6m cap, it will mean when you convert your accumulation account to a pension account, only $1.6m will be able to be converted to pension phase.

What are the options if you are at risk of approaching the $1.6m cap or exceeded it?

  • If you have a spouse who has not exceeded their individual cap ($1.6m), then you might want to look at spouse splitting your contributions.  This can occur after the tax year and you are able to split 85% of your contributions to your spouse.  If your super balances are looking lopsided this may be something worth considering.  Between a couple you can potentially have $3.2m in pension phase between a couple.

 

  • Look at other investment structures for any excess income you have to invest.  Should your personal tax be greater than 32.5%, and it’s likely if you have super with balances around the $1.6m mark, you are on the highest marginal tax rate, you may want to consider other investment structures outside of super.

Alternative Investment Structures:-

Tax Bond:-  This structure has been around for years however has not been popular in recent years due to the benefits of super and the ability to contribute large amounts.  Now the landscape has changed you may need to consider different investment structures and this is one of them.

A Tax Bond is effectively a tax structure where the tax rate is capped at 30%.  There are some unusual rules that do apply this this type of structure.  For instance, if you hold the tax bond for 10yrs plus, all the benefits are tax paid.  Therefore on withdrawal there is no tax implications.  You are able to withdraw the funds at any time however their may be some tax implications if withdrawn inside the 10yr mark.  That is if you withdraw inside the 10yr mark, any capital gains realised will be included in your personal tax return along with a tax credit for the tax paid, so that you pay tax at your marginal tax rate.

If you make contributions on a yearly basis you can contribute up to 125% of the previous years contributions.  If you break a year then you need to start a new tax bond.

Investment options are limited, although greater than they were 10yrs ago.  You are still able to set up cost effective investments inside the tax bond that will still deliver a similar outcome to other portfolio’s.  The investment options are generally cash, term deposits, managed investments and exchange traded funds.

Family Trust:- A family trust is a flexible investment structure where you have the ability to direct the income and capital gains to family members that may have lower tax brackets.  Allows the ability to reduce the overall tax rate where circumstances allow.  It is really a holding structure.

You have the ability to invest in different assets, much more flexible than a tax bond.  You can invest in cash, term deposits, direct shares, managed funds, exchange traded funds, direct residential property and commercial property to name a few.

They do come with tax and reporting obligations every year.

Provides a level of asset protection as well.

Company:- If you have significant assets you may already have a company structure.  A company is taxed at 30% on income and capital gains.  If income is distributed to an individual it will taxed at the individual’s tax rate.

A company is a more complex structure and comes with more reporting and tax obligations, so you would need to consult an accountant to see if this is appropriate for you.

A company allows for an endless array of investments, cash, term deposits, direct shares, exchange traded funds, managed funds, residential property and commercial property to name a few.

 

This post in not intended to be comprehensive, but to point out that if you are approaching the limits or already there, there are other options you can consider.  It will all come down to your individual circumstances and what is right for your unique situation.

If you would like to know more about the super changes, you can download my FREE ebook [Super Changes Cut Through] by clicking HEREYou’ll find 11 super simple, easy to understand, no jargon ways to save tax and increase your retirement funding, so you can enjoy living life after work without the worry.

When it comes to being financially fit & able to reach your desired lifestyle and goals, you have two choices, you can go it alone and stumble your way through, or alternatively, you can take the fast lane.

If you’d like to take the fast lane, feel free to reach out and I’ll share some of what I’ve learnt.

Book your 15 min phone chat by giving Glenn a call on 1300 558 713 or 0401 253 729, or alternatively email me at gdoherty@exelsuper.com.au.

“There are only 168 hours in week. MAKE THEM COUNT!”

Written by Glenn Doherty CFP – Financial Organiser/SMSF Specialist

This information is of a general advice nature only, and has been prepared without taking into account your particular financial needs, circumstances or objectives. All information is based on Exelsuper Advice Pty Ltd’s understanding of current law as of 4th July 2017. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should seek professional advice before acting on the information contained in this publication. Taxation considerations are general and based on present taxation laws, rulings and their interpretation as at 4th July 2017. You should seek independent professional tax advice before making any decision based on this information. Exelsuper Advice Pty Ltd CAN 080 419 holds an Australian Financial Services License 428272.

 

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