As you set your financial goals for 2021, don’t forget to think about Super. This year welcomes a series of changes to Australia’s superannuation scheme which are designed to give the employee more power and control over their future retirement investment.
From 1 January 2021, employees have the right to elect a super fund of their choice into which their employer pays their compulsory super contributions. This will override the previous system under which employers preferred their default fund, often a basic product with minimum returns. The rationale is that if an employer elects their fund, they won’t get stuck paying duplicate fees for multiple funds. Further, the Government is going to ‘staple’ an employee’s elected fund to them, so it will follow them as they move jobs.
When hiring a new employee an employer must check with the ATO if that employee has elected a staple super fund. The employer is obligated to pay voluntary super contributions into that fund unless the employee notifies them otherwise. New and existing employees can notify their employer of their preferred fund using the Standard Choice Form which can be accessed through the Employment menu of the ATO’s online services portal via myGov. It is only in circumstances where an employee does not have a super account and does not notify their employer of their nominated fund that the employer may create an account on the employee’s behalf with the employer’s default superannuation fund.
The Super Guarantee is the compulsory amount that the employer must pay into your super fund. This is calculated as a percentage of your gross income. Since 2014 the Super Guarantee has been frozen at 9.5% and from 1 July 2021, it is set to increase to 10%.
The 2021 superannuation changes will require fund administrators to be transparent about meeting their obligation to act in the best interest of their members by reporting on how they manage and spend member’s money. Further, the reforms impose an annual performance test on Superannuation products, the results of which will be made public on a government website. Funds that fail two consecutive tests will be blocked from accepting new members.
The online portal and increased transparency and accountability will give employers, as consumers of superannuation products, the information needed to make an informed decision when comparing and selecting a super fund.
No idea what I’m talking about? Let me explain. Concessional contributions include both employer contributions (including those made under a salary sacrifice arrangement) and personal contributions made as a tax deduction (one of the many benefits of tax planning) paid into super. If you have multiple super accounts, all contributions to all accounts are added together to calculate your concessional contributions.
The concessional contributions cap is the limit of contributions that can be made to a super fund before attracting additional tax liability. The Government has removed the age pre-condition and set this cap at $25,000 with a 5-year rolling catch up contributions for eligible individuals with less than $500,000 in super. In effect, if you are eligible you can carry forward any unused contributions (concessional contributions cap less concessional contributions made) to make ‘catch up’ contributions in 2020/21. The benefit? You can minimise your income tax liability, increase your super and do so without attracting the additional tax usually imposed for exceeding the annual concessional contributions cap.
There are also non-concessional contributions which are contributions that an individual is not claiming a tax deduction for. This type of contribution is paid into super from savings or other money that you have already paid tax on and will not be taxed a second time when paid into your super fund. The non-concessional contributions cap is $100,000 in 2020/21. It is available only to those with a super balance under $1.6 million at the start of the financial year and is subject to a 3 year bring forward rule.
The carry forward provisions can get quite complex depending on your circumstances with options to split contributions and claim spousal rebates, as well as specific rules that apply for those 65 and older. We recommend you seek personalised tax advice from an expert (that’s us!) before attempting to take advantage of any of these schemes.
When it comes to tax and superannuation, tax planning is so important. Book a FREE chat with one of our professional tax agents to learn how YOUtax can help YOU to minimise your tax liability and better understand your superannuation. It’s online. It’s 30 minutes. It’s free. Book now!