As the end of the financial year looms, business owners are being urged to pay close attention to their own super, with a law change coming into effect meaning they could be $10,000 worse off.
According to modelling conducted by AMP, the changes to non-concessional contributions to superannuation are likely to result in a $10,000 hit to super balances, but those who act before the change comes into effect on 1 July 2017 can negate this effect.
AMP financial adviser Mark Borg told My Business that business owners are expected to be particularly hard hit by the change, given that in many instances they only seek to bolster their super balance in the last few years of their working life.
“Prior to 30 June , you can put $540,000 into super, and after the 30 June it drops to $300,000,” he says.
The rule change means that anyone in a position to add that $540,000 by 30 June 2017 will be around $10,000 better off than those who wait until the new financial because they are effectively losing the tax-free status on the income earned from that $200,000 difference.
“The advantage that super has is once you’ve retired, of course the income provided and invested is tax-free. And so if you haven’t got it in and you’ve got it sitting elsewhere, you’re going to pay tax at your marginal tax rate on the income produced, rather than have that tax-free environment that super and a superannuation pension affords you,” says Mark.
“If you’ve got the ability to put it in, missing out by a couple of days is dumb because paying tax at 15 cents in the dollar is much better than most people’s marginal tax bracket.”
Mark explains that anyone with a super balance exceeding $1.6 million will also be hard hit by the incoming super changes, making this financial year-end a particularly important one.
“If [you have] an account balance that exceeds $1.6 million, this is [your] last opportunity to actually put money on a non-concessional basis into super,” he says.
“Once the 1st of the 7th ticks by, [you]’re not able to put any additional non-concessional monies into super. And so not doing it ... not clever!”
It comes after Peter Saccasan of RSM Australia warned that business owners risk facing an uncertain retirement as a result of the incoming superannuation changes, given that a large number don’t understand what is happening and hence are unable to plan their finances accordingly.