Key changes to superannuation announced

A number of key superannuation changes were announced in last night’s Federal Budget, making this a very significant Budget for superannuation.

New measures will see low income earners continue to receive an important tax offset, while those earning over $250,000 will pay an additional 15% tax on their super contributions, bringing their tax on super contributions to 30%.

  • In a bid to limit the amount of super you can contribute over a lifetime, the Government has also announced changes to the contribution caps;an annual $25,000 concessional contribution cap will now apply for all individuals;

  • a lifetime non-concessional contribution cap of $500,000; and

  • a $1.6 million cap for transfers to pension accounts.

These measures have different starting dates, some are effective immediately, others next year and some retrospectively.

Below is a summary of the key changes. 

If you are retired or approaching retirement, we recommend that you contact us to seek advice in relation to these changes.  Please contact us on (02) 9046 1920 to arrange an appointment.

Low income tax offset retained 
A tax offset that providers a super savings boost of up to $500 a year for those earning up to $37,000 has been retained. The Low Income Superannuation Tax Offset will replace the existing Low Income Superannuation Contribution (LISC) from 1 July 2017.   The LISC was previously scheduled to expire on 30 June 2017.

  • New contribution cap of $25,000 for all
    From 1 July, 2017, the annual concessional contributions cap from $30,000 for those aged under 50 - or $35,000 for those over 50 – has been lowered to $25,000 for all individuals. The cap will index in line with wages growth.

  • New lifetime non-concessional cap of $500,000
    Effective from Budget night (May 3, 2016), a $500,000 lifetime cap on non-concessional contributions will apply for all individuals aged up to 75. This will apply retrospectively by taking into account all non-concessional contributions made since 1 July 2007. The cap will be indexed in $50,000 increments in line with wages. If an individual has exceeded the cap prior to commencement, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system. This measure relates to non-concessional (after-tax) contributions NOT concessional contributions.

  • New $1.6 million cap on money you can put into retirement phase
    From 1 July, 2017 The Government will introduce a $1.6 million cap on the total amount of superannuation savings that can be transferred from a concessionally-taxed ‘accumulation account’ to a tax-free ‘retirement account’.  Superannuation savings accumulated in excess of the cap can remain in an accumulation superannuation account, where the earnings will be taxed at 15 per cent. Those individuals already in retirement as at 1 July 2017 with balances in excess of $1.6 million will need to either transfer the excess back into an accumulation superannuation account; or withdraw the excess amount from their superannuation. Members who think they may be affected by this new measure should consider speaking to one our financial planners.

  • New catch-up measure for those with balances of $500,000 or less
    From July 1, 2017, people with superannuation balances of $500,000 or less will be able to rollover their unused concessional cap amounts (now set annually at $25,000) for a period of five years. This measure – which means that those who qualify can make larger super contributions than $25,000 in some years, where they have “unused caps” over the five year period - has been designed to provide more flexibility for those who can make extra contributions and assist those returning to the workforce.

  • Changes to Transition to Retirement (TTR)
    Effective 1 July 2017, the tax exempt status of income from assets supporting transition to retirement income streams will be removed, meaning that the earnings tax in TTR pensions will be 15%.  This change will apply irrespective of when the transition to retirement income stream commenced.  Individuals will no longer be allowed to treat certain superannuation income stream payments as lump sums for tax minimisation purposes.

  • 30% concessional contribution tax for those with incomes of $250,000 or more
    Individuals with incomes over $250,000 will now be required to pay an additional 15% tax on their super contributions.  The threshold was previously $300,000.  To be liable for a total of 30 per cent tax, a person would need to have at least $250,000 in combined income and concessional superannuation contributions.  In 2017/18, approximately 1% of fund members are expected to pay Division 293 taxation.  This change will also be reflected in defined benefit schemes.

  • More people able to claim super tax deduction on voluntary contributions
    From July 1, 2017, anyone under 75 will be able to claim an income tax deduction for personal superannuation contributions to an eligible fund, up to the new $25,000 concessional contribution cap. Previously, many self-employed people were unable to claim a deduction on their personal superannuation contributions, and not everyone has access to salary sacrificing arrangements. These amounts will count towards the individual’s concessional contributions cap, and be subject to 15 per cent contributions cap.

  • Extension of the spouse tax offset
    From 1 July, 2017, the eligibility rules for claiming the tax offset for superannuation contributions partners make to their low income spouses will be extended. The current 18 per cent tax offset of up to $540 will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. This is an increase from the current $10,800. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000. Individuals will be able to make contributions on behalf of their spouse who is under age 75.

  • Changes to defined benefit schemes
    From 1 July 2017, members of defined benefit schemes will be to subject to the above changes, with a few exemptions for some funds. Members of defined benefit schemes will be permitted to make concessional contributions to accumulation schemes. However, the $25,000 cap will be reduced by the amount of their ‘notional contributions’. The $250,000 threshold for the high income contributions tax will also apply.
    From Budget night, non-concessional contributions to defined benefit schemes made since 1 July 2007 will be included in the $500,000 lifetime cap, but will not be required to be withdrawn. If a member with a defined benefit account exceeds their lifetime non‑concessional contributions cap, ongoing contributions to the defined benefit account can continue but they will be required to remove an equivalent amount from any accumulation account on an annual basis if they have one.

 Other

  • Negative gearing
    No changes will be made to negative gearing. 

  • Age pension
    No changes were announced that effect the age pension eligibility or payment rates.

 Further information

There are significant changes to superannuation in this budget, the full 2016/17 Budget is available on the Government’s website http://www.budget.gov.au/
If you would like further information on how this budget may impact you, we recommend that you seek professional advice. EISS Financial Planning can provide you with advice over the phone, at our offices or at a location near you.  To find out more or to book an appointment, please call (02) 9046 1920 or email fp@eisuper.com.au.

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