Wealth: Five changes to super contributions

Changes announced in 2016, including major changes to what you can contribute to your account and how, mean Australia's superannuation system is about to undergo its biggest shake up in a decade.

These five significant changes came into effect from 1 July 2017.

1. Reduced concessional (before-tax) contributions

The concessional contribution cap for before-tax super contributions – including employer Superannuation Guarantee payments and salary sacrifice – will drop to $25,000 a year for everyone; down from $30,000 for those aged under 50 and $35,000 for those 50 or older.

The change will make it more difficult to boost your super quickly in the years leading up to retirement, so you'll need to start thinking about super earlier in your career.

The new caps came into effect from 1 July 2017.

2. Reduced non-concessional (after-tax) contributions

After-tax superannuation caps will drop to $100,000 a year, down from $180,000. Those under age 65 will still be able to “bring forward” three years of after-tax contributions, but the limit will be reduced to $300,000, down from $540,000.

Under the new rules, you won't be able to make any non-concessional contributions once your total super balance reaches $1.6 million.

Again, the new caps came into effect from 1 July 2017.

3. Spouse contributions more widely available

The spouse tax offset will be extended to more couples. Prior to 1 July, 2017, a tax offset of up to $540 was available for individuals who make superannuation contributions to their spouse's account – if their spouse's total income was less than $13,800.

Under the new rules the offset has been extended to those whose recipient spouses earn up to $40,000.  The offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.

The move means there is greater flexibility to support your partner and include spouse contributions as part of your overall strategy.

4. Widening access to concessional contributions

All individuals under the age of 65, and those aged 65 to 74 who meet the work test, will be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.

An income tax deduction for personal superannuation contributions before 1 July 2017 is only available to people who earn less than 10 per cent of their income from salary or wages.

5. Introducing catch up contributions

From 1 July 2018, super customers will be able to “carry forward” any unused concessional cap amounts for up to five financial years. This change will apply to people with total super balances of less than $500,000.

Unused amounts “carried forward” can only be used in subsequent years, so the first year in which you'll be able to access the ability to contribute more than the normal cap is 2019–20.

Catch up contributions could be helpful for those who take time out of work, whose income varies considerably from one year to the next, or whose circumstances have changed and are now in a position to increase their contributions to superannuation.

This article first appeared on the website of Mercer, our superannuation partner.