Superannuation is perhaps the most tax-effective structure in which to hold your wealth, resulting in a significant build up of assets within superannuation funds. Because of this, to improve its budget bottom line, the Federal Government has made it a lot harder to transfer money into superannuation. In the 2016 Federal Budget, the Government significantly reduced what individuals will be able to contribute to superannuation in the future. These changes were initially announced in the Budget and then amended following consultation. The legislation giving effect to the changes has passed through Parliament and is now law.
Those with a GESB West State superannuation benefit have been at a major advantage. This is because they’ve had the ability to contribute to superannuation by salary sacrifice or personal (tax-deductible) contributions beyond the annual superannuation concessional contribution limit ($30,000 for those under age 50, and $35,000 for those over the age of 50).
Initially it was thought that from 1 July 2017 this advantage would be removed, limiting members to the new contribution limit (just $25,000 per annum). Following further clarification, it has been confirmed that this is not the case.
So how does it work? From 1 July 2017:
- A contribution to a GESB West State account needs to be by way of superannuation guarantee (employer contributions) or salary sacrifice. To do so, you must be employed by a Western Australian (WA) Government employer. This will exclude those currently making personal tax-deductible contributions who are not employed by the WA Government.
- Superannuation guarantee and salary sacrifice contributions made to GESB West State ‘cannot’ create an excess concessional contribution.
- However, these contributions will count towards an individual’s concessional contribution cap ($25,000 from 1 July 2017) limiting what the member can contribute to other super funds.
In summary, fortunately, all is not lost. From 1 July 2017, if employed by the WA Department of Health or employed by the WA Government through another department, members will continue to be able to make salary sacrifice contributions to GESB West State above the concessional contribution limit.
However, GESB West State members will no longer be eligible to claim a tax deduction for personal deductible contributions made after 30 June 2017.
Those still eligible to make personal deductible contributions to GESB West State before 30 June 2017 need to carefully consider this opportunity before it is lost.
These changes still present a range of planning opportunities to individuals to significantly reduce the amount of income tax they pay and to direct larger amounts of money (than will soon be possible) into the very tax-effective superannuation environment.
We urge those with a GESB West State benefit to review their strategy immediately. Now is the ideal time to organise a meeting with Redwood to assess how you should proceed. We note that any decision about what actions to take should only be made after a comprehensive assessment of your financial circumstances.