How Super Changes Impact High Income Business Owners

[ The advice you should take to make the most of your super ]
by Megan Kelly Published

Super has been getting a lot of air time lately, but not all the changes have been getting enough attention. From the media coverage, you may be thinking that these changes are only impacting people who are in retirement, or have already got more than $1.6million in super. Or maybe, you just think that because you are younger, there is nothing you can do about it. 

But that isn’t true!

You may be young and retirement is a long way off, but that doesn’t mean you shouldn’t consider how these super changes will impact you or more importantly, what action and advice you should take to make the most of your super before 30 June 2017.

Take Doc Brown as an example - Doc Brown is a doctor, married to Clara with 2 kids. He currently earns $100,000 from Queensland Health in addition to the $500,000 he receives from his own private practice. Clara works part time in the Doc’s business in administration role earning $75,000 per year. 

The Doc and Clara have a SMSF, which has $1million in the Doc’s name and $200k in Clara’s name. The fund owns a $2million property via a limited recourse borrowing arrangement. [ ie. so has $1million debt on the property ]

They each have $5million of life and TPD cover in his SMSF, costing them around $8,000 each a year in premiums. They have binding death benefit nominations for the member accounts to be paid to their minor children as child pensions.

The Doc also has a QSuper account, but isn’t sure of the balance. His wife is pretty sure she has some super from her days working in retail but she is not sure of her balance as well.

Prior to 2017, the doctor would make the maximum non-concessional contributions of $180k each between for himself and his wife. As well as the maximum $30,000 concessional contributions.

There are still a number of key things they need to think about before 30 June 2017:

1. First the Doc and Clara need to know exactly how much super they have and where.

2. They need to consider when/if they hit the $1.6million mark because this will lock you out of making any further non-concessional contributions [ When was their property last valued? Is it still worth $2million maybe it’s now worth $2.4m? What will that do to the Doc’s super balance? ]

3. Should they be triggering the bring forward rule now and taking advantage of the $540,000 [ before it reduces to $300k or NIL if the Doc exceeds his $1.6million Total Super Balance ]

4. Should Doc be splitting contributions to Clara with the ultimate goal of evening up their member balances as much as possible?

5. From 1 July 2017, core public sector employees will have full choice over which fund they make their contributions into [ so should the Doc be choosing to transfer his QSuper over to his SMSF and directing his Queensland Health contributions straight into his SMSF in the future? ]

6. The Doc and Clara should reconsider whether super is still the right place to hold their insurance, given that the proceeds are well in excess of $1.6 million and the policy premiums are using a large portion of their $25,000 concessional contribution cap.

i. Maximum of $1.6million of your super can remain inside super following your death, do you know where the rest of the proceeds will go and how? [ie. do you need to review your estate plan for your super?]

ii. Is the deduction for the premiums worth it? Are you better accumulating the extra premium within the super fund environment over the long term given the new contribution restrictions?

7. Doc is already paying the extra 15% Div 293 tax because his income is over $250k p.a. But as Clara's assets grow she should consider how close her income is getting to the $250k p.a and whether she will also start being hit with this extra 15% tax on her contributions.

At the end of the day, earnings inside superannuation are being taxed at a maximum of 15% regardless of how far over $1.6million you might be.

As a high net wealth individual, 15% is the best tax bracket you will be able to achieve. Even though there is a new limit on tax free earnings in retirement, that doesn’t necessarily mean you should only be aiming to grow your super to $1.6million.

So, just because you aren’t in retirement phase yet, it doesn’t mean that you shouldn’t be getting on top of these super changes and planning out what actions you should take before 30 June 2017 to set you up for the future.

For personalised advice, please do not hesitate to get in touch with Megan Kelly and the super team for a full super review at [07] 3193 3020 or [07] 3193 3000. 

General Advice Warning:

Information provided on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information provided is accurate. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial adviser to take into account your particular investment objectives, financial situation and individual needs.

Depot Superannuation Pty Ltd is a corporate authorised representative (No 1240831) of Hunter Green Pty Ltd AFSL 225962.

Megan Kelly
read more by Megan Kelly

Megan’s skills in self-managed super to provide both the accounting and strategic advice solutions for clients. Her many years working with business owners on their SMSFs has meant that she understands the value of including their superannuation in a business owners overall financial plan.

Her passion is to assist client’s in taking control of their future, through supporting them in making decisions in relation to the self-managed fund and their retirement. Megan regularly provides advice in relation to investment structuring, SIS compliance as well as pension and retirement planning.

Megan has also provided specialist support in relation to estate planning, family law disputes and compliance issues. She is a member of the SMSF Association Queensland Community, and a valued member of the network of SMSF specialists.

Megan Kelly is an authorised representative [No. 1240833] of Hunter Green Pty Ltd AFSL 225962. Your Adviser may offer you services through Depot Superannuation Pty Ltd which is a separate business. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide. In particular, Hunter Green is only responsible for the financial planning services provided by Megan Kelly.

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