The importance of investing today for a better tomorrow

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The ever-evolving domain of superannuation has once again been shaken up by the government with some of the most dramatic changes we’ve seen in recent history.

It’s crucial that you are not only aware of the changes, but also taking action. The scale and detail behind some of the below reforms can be quite complex and consequential, so it’s important that you have a solid understanding of what’s going on in the world of superannuation and how it’s shaping your future.

Super should be looked at as your investment vehicle for retirement so you will want to maximise any and all opportunities to reap the full value once you’re ready to ‘call it a day’. Your free trial of Checkpoint grants you access to the Australian Superannuation Handbook which will bring you up to scratch and ensure you’re set up with the right structure for your situation.

We’ve hand picked a selection of reforms announced in this year’s Budget that are most likely to be affecting you:

  • Contribution caps

The concessional (before-tax) contribution cap has been lowered to $25,000 for the 2017–2018 financial year (down from $35,000 or $30,000, depending on your circumstances).

  • Small business CGT concessions

These concessions apply to pre-retirees or those already enjoying retirement who are looking to sell their businesses or move their business on. One is the retirement exemption, the other is known as the 15-year asset exemption. Taking advantage of these concessions may allow up to an additional $500,000 from proceeds of the sale of the business to be made into super.

  • Pension transfer balance cap of $1.6 million

One of the biggest changes is the $1.6 million cap on tax-free pension balances. The limit, which will mainly affect wealthy individuals, applies to the total lifetime amount of accumulated superannuation a person can transfer into the tax-free retirement phase.

It’s crucial that you are not only aware of the changes, but also taking action

  • Splitting income, contributions and tax with spouses

This continues to be a valid way to boost super balances especially with the introduction of the $1.6 million cap. The splitting approach is particularly important if one spouse has taken time off work to build a new business from scratch as it’s highly likely they won’t be contributing to superannuation. The working spouse can split up to 85% of their contributions to their non-working spouse to even up their member balances. For example, if there is $10,000 of employer contributions, you can split up to $8,500 of that employer contribution.

Superannuation is not something that should be overlooked or taken for granted. As a small business owner, you’re not legally required to pay yourself super, which makes it even more important to be on top of the changes. In contrast, employees can enjoy the benefit of having 9.5% of their salary paid into their super fund courtesy of their employer as part of the ‘super guarantee’ concept.

When it comes to small business owners, it is those that have strong foundations, are well-organised, have positive cash flow and make consistent contributions to their fund that will enjoy the freedom of flexibility and a sense of security. These people are putting themselves in good stead for a comfortable retirement without the burden of having to rely on the Age Pension.

For many other SMEs, the situation is very different. Personal superannuation contributions are not on the radar. Other goals are given priority like injecting money back into the business, keeping the books above water, and remaining noticed in a fiercely tight and competitive economy. As a consequence, we see too many SME owners finding themselves applying for an Age Pension as they hit retirement, or worse yet, relying on family and friends for financial support.

The new rules and regulations can and will impact you and your business to varying degrees depending on your circumstances, so if you have questions, Checkpoint has the answers – sign up for a free trial and access your go-to-guide for all of your super, tax and finance queries.

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Jake Smith
Jake Smith is a writer and entrepreneur. A finance writer for Kochie's Business Builders, he also founded Smithers; an Australian swimwear label designed with the modern day gentleman in mind. Equally passionate about writing, business and sport, Jake started his career in personal wealth and has attended five Olympic and Paralympic games including Rio 2016 where he worked as a sports journalist

3 COMMENTS

  1. Hi,
    How much a week would you suggest putting towards your super, if you work part time as a nurse, renting accommodation and single?
    I salary sacrifice $149.00 a fortnight towards super.

    • Hey Barabara
      There is a limit on the amount you can contribute to your super each financial year and be taxed at the concessional rate. These superannuation contribution limits are known as concessional contributions caps. The annual cap for concessional contributions is $25,000 p.a as of 2017/2018 finiancial year. If you can afford to I would recommend sacrificing at least 10 percent of your income to super to help you get a nest egg and benefit from the government’s matching super contribution scheme.

  2. It is unfortunate that the government continually shows that they are not serious about supporting superannuation contributions as if they were they would be doing a lot more. As a s
    SB owner I no longer make superannuation payments after losing 40% of my super in the last crash that supposedly we had to have.
    Why would I put more in when it can be taken away at any time?
    It’s now really a form of gambling.
    Superannuation needs to be completely revamped by the government.
    Firstly all super contributions should be guaranteed to be capital stable.
    Secondly fees should only be paid as a percentage of interest earned in a given period unlike now where fund investors get paid irrespective of whether they have performed for your super investment or not.
    Thirdly caps for superannuation payments should be increased to allow SME the opportunity to top their super annuation up to an appropriate level for retirement.
    If the government was serious superannuation contributions should be tax exempt up to certain thresholds. Ultimately this will ease the demand on the government pension.
    Fourthly all Government and MP superannuation contributions should be at the same rate as a workers, and not elitist as now is for MP’s from the public purse.
    Finally with the average super holding being less than $360,000 for the average Australian poverty or the pension is the only option. 5% interest if you could get it less CPI leaves very little indeed.
    Even a fund with $1.6M will only give a modest income compar d to public servants who retire on an an average pension of 2/3 of their salary over the last 3 years of work indexed for life!
    Guess I took the wrong turn.
    Should have been an MP!

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