The Australian Taxation Office (ATO) has confirmed increases to a number of superannuation key rates and thresholds, which could provide a boost of up to $100,000 for some retirees.
Minister for superannuation Jane Hume confirmed the changes in a media release last week.
From 1 July 2021, Australians will be able to put more into their super because the concessional and non-concessional contribution caps and the general transfer balance cap are set to increase due to indexation for the first time since July 2017.
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Concessional contributions, which are contributions that are made into your super fund before tax, are taxed at a rate of 15 per cent in your super fund.
The annual concessional contribution cap will increase from $25,000 to $27,500 as a result of the 1 July indexation changes.
The annual non-concessional contribution cap, for contributions that are made into your super fund after tax is paid, will also increase from $100,000 to $110,000 on 1 July.
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The latest figures also show an indexed increase in the transfer balance cap from $1.6 million to $1.7 million.
The transfer balance cap is a limit on how much superannuation can be transferred into a tax‑free retirement account.
The transfer balance cap was introduced in July 2017 as a way to tax the superannuation accounts of the wealthiest retirees.
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Any earnings over the cap amount, currently $1.6 million, are eligible for tax, while the amount under the cap is tax free, which means that from 1 July earnings under $1.7 million will remain tax free.
Once indexation of the transfer balance cap occurs, it will create two tiers of retirees.
Those who start their first retirement phase income stream on or after the indexation date will have a transfer balance cap of $1.7 million. This is $100,000 more than those who already have a transfer balance account, and who at any time met or exceeded the current $1.6 million transfer balance cap, who will not be entitled to the indexation boost.
The indexation changes will also affect the defined benefit income cap for some retirees.
When the general transfer balance cap is indexed, the defined benefit income cap, which is currently $100,000 for most people, will be indexed to $106,250.
This means that investors may notice a change in the amount their fund withholds from their pension or annuity if they receive income from a capped defined benefit income stream and are 60 years old or over.
Further information on the new superannuation key rates and thresholds is available at the ATO website.
How will the indexation changes starting on 1 July change your retirement plans?
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