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Preparing for contribution cap changes

Posted on March 8, 2017 by admin

From 1 July 2017, many of the 2016 Federal Budget super reforms will take place, including the reduction of both the annual concessional and non-concessional contribution caps.

Concessional contributions
Concessional contributions include employer contributions and salary sacrifice amounts. Personal contributions claimed as a personal super contribution deduction also count as concessional contributions.

The concessional (pre-tax) contributions cap will be lowered to $25,000 for everyone. Previously, those aged 50 years and older could contribute up to $30,000 and $35,000 for everyone else.

Individuals who wish to make extra concessional contributions before 1 July will need to check what concessional contributions have been made to all their super funds from 1 July 2016 and arrange for the additional concessional contributions (up to their age cap) to be paid to their super before 30 June 2017.

A new super rule will be introduced effective from 1 July 2018 which will allow individuals with a total super balance of less than $500,000 at the end of 30 June of the previous year to ‘carry-forward’ their unused concessional contributions cap. This allows individuals to access their unused cap space on a rolling basis for five years.

For example, in 2018-19, Tom makes $10,000 in concessional contributions, leaving an unused amount of concessional contribution cap of $15,000. Tom can carry forward for up to five years to increase his concessional contribution cap. In 2019-20, in addition to his normal $25,000 concessional cap, Tom can use the $15,000 of unused cap from the previous year. This means Tom’s total concessional cap for 2019-20 is $40,000.

Non-concessional contributions
Non-concessional contributions include personal contributions for which you do not claim as a tax deduction. All non-concessional contributions made to all your super funds are added together and count towards the cap.

The annual non-concessional (after-tax) contribution cap will be reduced from $180,000 to $100,000. Those aged between 65 and 74 years old can still access this cap, provided they satisfy the work test.

Individuals who make non-concessional contributions with a total super balance greater or equal to the general transfer balance cap for the year ($1.6 million for the 2017-18 financial year) at the end of 30 June of the previous financial year will give rise to excess contributions.

For those under 65 years, you can still bring forward three years worth of non-concessional contributions. However, as the non-concessional cap has lowered to $100,000, you will only be able to bring forward $300,000 in a single year from 1 July 2017 onwards.

To access the non-concessional bring forward arrangement for 2017-18, you must be under 65 years for one day during the first year and you must have a total super balance less than $1.5 million.

The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for a financial year if your total super balance is greater than or equal to the general transfer cap at the end of 30 June of the previous financial year.

Transitional arrangements will apply to those individuals who have triggered the bring-forward period in the 2015-16 or 2016-17 financial years but have not fully used their bring-forward before 1 July 2017.

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Avoiding mortgage default

Posted on August 26, 2020 by admin

As individuals struggle with cash flow through the coronavirus, the Australian Bankers Association records that repayments on almost 500,000 mortgages have been deferred for six months. While repayments can be delayed, they cannot be avoided altogether.

Lenders can send you a default notice the day your repayment is overdue. However, they could also wait until your repayment is overdue by 90 or more days. When you receive a default notice, you are given 30 days to repay the amounts you have missed in addition to the regular repayment on your loan. Individuals who are struggling with their home loan repayments can avoid mortgage default by considering the following.

Contact your lender
Lenders are generally willing to work with you through financial hardship. Don’t be afraid to contact your lender to discuss your situation and find out what options are available for you. Lenders are often willing to negotiate short-term variations to repayment schedules that both parties can agree to. However, make sure that you do not agree to unrealistic repayment conditions that cannot be met.

Many Australian banks are offering a six-month deferral on mortgage repayments (including interest) for customers who are experiencing financial hardship as a result of COVID-19. If this is you, contact your bank to see if this is an option.

Apply for a hardship variation
Mortgage holders may be able to change the terms of their loan or temporarily pause or reduce their repayments under a hardship variation. A hardship variation can still be requested after you receive a mortgage default. To apply for one, contact your lender’s “hardship officer” and tell them that you wish to change your loan repayments due to financial hardship. This will usually require you to explain why you are struggling to make payments and to estimate how long your financial problems will continue to determine how much you can afford to repay.

After submitting a hardship variation request, your lender must contact you within 21 days with the outcome of your request. They may ask you for more details regarding your request; in this case, they must contact you again within 21 days from when you provide the additional information.

Consider selling your home
Selling your home is a tough decision, but in some cases this may be the better option if your circumstances are unlikely to improve. If you get to the point where your lender takes possession of your home and sells it, it’s likely that you won’t make as much as if you sold it yourself. When you sell your house on your own terms, chances are you will get a better price and avoid having to pay the legal fees passed on by your lender. Inform your lender if you decide to sell your home; they may ask for proof, such as a copy of the contract with your real estate agent or property advertisements.

Renting out your home until you can afford to make repayments again may also be an option if you are able to live somewhere else during this period.

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