Proposed Changes to Superannuation Overview
During September and October the Government released the second and third tranches of draft legislation for the proposed changes to superannuation that were previously announced in the May 2016 Federal Budget. A key summary is listed below. We note that at this stage this is proposed legislation only.
Non-Concessional Contribution Cap – From 1 July 2017 the Government will reduce the annual cap on non-concessional superannuation contributions to $100,000 per annum (down from $180,000 per annum). Bring forward which allows you to group three years’ worth of contributions together will still apply however with limitations and complexity.
Note: you are only able to make non-concessional contributions to your superannuation fund if your total superannuation balance is below $1.6 million.
Planning Opportunity – if you are in a position to make large non-concessional contributions this financial year you should consider doing it while the higher annual caps are in play (maximum of $540,000 depending on previous contributions). This is particularly important for those who have accumulated more than $1.6 million in superannuation as, from 1 July 2017; you will no longer be eligible to make non-concessional contribution into superannuation.
Updates on Previously Announced Changes
$1.6 Million Superannuation Transfer to Pension Phase Balance Cap – From 1 July 2017 the Government will introduce a cap of $1.6 million on the amount of benefits that can be transferred from an accumulation account into a tax free (pension) retirement account.
Reduction in the Concessional Contribution Cap to $25,000 for all Regardless of Age – From 1 July 2017 the Government will reduce the annual cap on concessional superannuation contributions to $25,000 for everyone (the caps are currently $30,000 for those under age 50 and $35,000 for ages 50 and over).
Planning Opportunity – For those over age 50 you should consider maximising your $35,000 contribution cap this year before it drops back down to $25,000 next financial year (a $10,000 per year drop!). Remember this cap includes employer compulsory contributions (currently 9.5%) as well as salary sacrifice contributions.
Transition to Retirement Income Streams (TRIS) – From 1 July 2017, the tax exemption for earnings on assets supporting ‘transition to retirement’ income streams will be removed.
Review – For those currently running a TRIS your strategy should be reviewed to determine if you should continue with the TRIS post 1 July 2017.
Tax Deductions for Personal Superannuation Contributions – From 1 July 2017, individuals eligible to make contributions to superannuation will be able to claim an income tax deduction for personal superannuation contributions. This will apply regardless of employment status and replaces the previous 10% rule.
Keep In Mind – This may benefit you if a large capital gain is made during a single financial year to reduce your overall tax liability.
Low Income Superannuation Tax Offset (LISTO) – From 1 July 2017, a Low Income Superannuation Tax Offset (LISTO) will apply to reduce tax on superannuation contributions for low-income earners.
The LISTO is a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners. The offset is capped at $500 and will apply to members with adjusted taxable income up to $37,000.
Superannuation Balances of Low-Income Spouses – From 1 July 2017, the Government will increase access to the low-income spouse tax offset.
This provides up to $540 per annum as a tax offset for the contributing spouse and will apply where the low-income spouse’s income is up to $37,000 (increased from the current $10,800).
Taxation of Concessional Superannuation Contributions – Currently those who earn over $300,000 (taxable income plus superannuation contribution) are required to pay an additional 15% contribution tax on their concessional super contributions (i.e. total of 30% contribution tax).
From 1 July 2017, this threshold will reduce to $250,000.
Anti-Detriment Payments – these will be abolished from 1 July 2017.
Abolished, Amended or Delayed
Lifetime Cap of $500,000 for Non-Concessional Superannuation Contributions (Abolished) – A $500,000 lifetime non-concessional contributions was to be introduced. This was to be backdated to capture all contributions made since 1 July 2007.
Fortunately this measure has been abolished with new reduced annual caps introduced instead.
Contribution Rules for Those Aged 65 to 74 (Abolished) – It was proposed that from 1 July 2017, individuals under the age of 75 would no longer have to satisfy a work test and would be able to receive contributions from their spouse.
This proposed change has been abolished.
Catch-Up Concessional Superannuation Contributions (Delayed) – This has been delayed and will now commence 1 July 2018. This measure allows individuals who have not reached their concessional contributions cap in previous years will be allowed to make additional concessional contributions.
The measure is limited to those whose superannuation balance is less than $500,000. Unused amounts are carried forward on a rolling basis for five consecutive years.
We will continue to update you with progress of the still pending legislation. If you have any queries regarding your personal circumstances please contact our office to speak to one of our financial planners.