THE GOOD NEWS

retirement-4

There are two particularly attractive measures in this budget. The first is that people who are working, and who make personal concessional superannuation contributions will be able to claim a tax deduction for those contributions even if the employer is making contributions too. Under the present rules you cannot claim a contribution if your boss is making contributions for you. Some employees get around this by using salary sacrifice, but that has created two types of employees – those whose bosses offer salary sacrifice and those whose bosses don’t. From 1 July 2017 it will be a level playing field.

The other good news is that the work test will be abolished for those aged between 65 and 75. Currently, they have to prove they have worked 40 hours in 30 consecutive days to be eligible to contribute. It was a stupid rule, and easy for anyone street smart to get around. From 1 July 2017, individuals will be able to make deductible contributions before they have turned 75. This could be particularly useful in reducing capital gains tax.

Suppose a retired couple sold shares or property that triggered a capital gain. Provided they were under 75 they could both make a deductible contribution of $25,000, which would reduce their taxable income and could reduce, or even eliminate, the taxable capital gain.

These changes open up a whole new world for anybody planning for retirement. The need to make provision for your own retirement still remains as great as ever due to rising life expectancies and the inability of governments to live within their means. Interest rates fell again this week and will almost certainly keep on going down. The big change now is we need to rethink how we build our wealth.

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