By Simon Pederson
According to the Australian Bureau of Statistics (ABS), net overseas migrating (NOM) is currently at 231,000. This means an additional 231,000 people are permanently residing in Australia this year alone. Many of these people are expatriates returning home from overseas or are new citizens experiencing Australian life for the very first time. The taxation and superannuation laws in Australia are complicated. Before moving assets into Australia from abroad, it is important to seek professional financial advice to ensure you are not adversely impacting your wealth.
If you are permanently retiring in Australia, superannuation is arguably the most tax-effective way to save for your retirement, as contributions and withdrawals are taxed at a concessional rate. But with so much jargon about the different methods of contribution limits and restrictions, it can be hard to know what's best for you.
In this article, we explore how to build your retirement savings in Australia by contributing to superannuation. The superannuation environment is changing and it is becoming harder and harder for expats to contribute their wealth into this tax-effective superannuation environment. We have been working with expats for several years and know that forward planning is critical. Below is a guide to the most common types of super contributions.
Types of contributions
- Non-concessional contributions
These are contributions you make to a super fund for which you have not claimed a personal tax deduction. Non-concessional contributions can include contributions made by:
- any eligible individual with after-tax money where a deduction has not been claimed, or
- a spouse.
Advantages of non-concessional contributions
A non-concessional contribution is made with after-tax money and therefore offers the following benefits:
- There will be no tax on contributions.
- The earnings on your investment will be taxed at a maximum rate of 15 per cent.
- When you are permanently residing in Australia, you can access your super in the future and any non-concessional contributions will be returned to you completely tax-free, either as part of a lump sum payment or over time as part of a pension.
- By making a non-concessional contribution, you may qualify for a super co-contribution from the Government.
Limits for non-concessional contributions
There is a limit on the level of non-concessional contributions you can make to super each year. The limit for 2017/18 is $100,000. However, individuals who have accumulated more than $1,600,000 in total super assets at the end of the previous financial year may have a non-concessional contributions cap of nil.
If you are under 65 at the start of the financial year, you can take advantage of the averaging rule to bring forward two additional years’ worth of non-concessional contributions and contribute up to $300,000 in one year. This may come in handy for those who receive a financial windfall such as an inheritance or the sale of a large asset. But be aware that if you choose this course of action, you may not be able to contribute any more in the next two years.
For individuals with higher super balances, access to the bring-forward provisions is restricted based on the table below.
- Concessional contributions
Concessional contributions are contributions made into your super fund for your benefit and which have generally been claimed as a tax deduction. Typically, these will include employer SG contributions, salary sacrifice contributions and contributions you have made for which you're entitled to (and have claimed) a tax deduction.
Limits on concessional contributions
Because of the tax concessions, there is a limit on the amount of concessional contributions you can make. This cap is $25,000 per annum.
If you make a concessional contribution, it will be taxed at a maximum rate of 15 per cent, and this tax is paid from your contribution (ie with no out of pocket expense for you). The tax on contributions may be up to 30 per cent for individuals with incomes over $250,000 pa.
Excess concessional contributions made from 1 July 2013 are taxed at your marginal tax rate (plus an excess concessional contributions tax interest charge). You also have the ability to withdraw 85 per cent of your excess concessional contributions.
To ensure you are maximising your retirement savings in Australia, it is important to start early and contribute to superannuation over many years. If you have any questions about this article you can contact us at Bridges Sunshine Coast or make an appointment with your local financial adviser.
Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.