Since they were announced as part of the 2016/17 Federal Budget, the changes to superannuation legislation have caused much confusion and concern. The following simple explanations will help you find out which changes apply to you and how you may be affected.
$1.6 million transfer balance cap – 1 July 2017
Individuals, both current retirees and those yet to enter retirement, will only be able to transfer $1.6 million (total across all accounts) to retirement phase accounts, which are tax free. For those who currently have more than $1.6 million in a pension account, the excess will need to be withdrawn and invested by other means, or reverted back to the accumulation phase, where it will be subject to 15 per cent earnings tax. Earnings after 1 July 2017 will not require to be withdrawn and the cap will be indexed in line with CPI, in increments of $100,000.
End of tax exemption for transition to retirement (TTR) pensions – 1 July 2017
For those with a TTR pension, the removal of the tax exemption on these pensions means that 15 per cent tax will be paid on the earnings, similar to the way in which superannuation during the accumulation phase is taxed.
Reduction of concessional contributions caps – 1 July 2017
One annual cap of $25,000 will be applied to concessional (before tax) contributions, effectively reducing the current cap from $30,000 for those under 50 years of age and $35,000 for those over 50.
Increased contributions tax for high-income earners – 1 July 2017
The income threshold over which higher contributions tax is paid will be lowered from $300,000 to $250,000. For those earning over $250,000, all concession contributions will be taxed at 30 per cent, rather than 15 per cent. Funds that were previously exempt will also be subject to this measure.
Reduction of non-concessional contributions cap – 1 July 2017
The current annual cap of $180,000 for non-concessional (after tax) contributions will be reduced to $100,000. This also has an effect on the ‘bring forward’ rule, under which you can contribute three years’ worth of contributions in any financial year, providing you are under 65 and do not?make any further non-concessional contributions over the three-year period. An additional rule has been applied whereby you can only make non-concessional contributions if your superannuation balances total less than $1.6 million.
Refund of contributions tax paid for low-income earners – 1 July 2017
Previously known as the Low Income Super Contribution (LISO), this was slated to cease on 1 July 2017. The concept will continue in the form of a refund of contributions tax paid for low-income earners and will be known as the Low Income Superannuation Tax Offset (LISTO). Low-income earners with an adjustable taxable income of $37,000 or less will receive a refund of up to $500 into their superannuation account.
Increased income threshold for spouse contribution tax offset – 1 July 2017
The income threshold under which a contributing spouse can claim the spouse superannuation tax offset – up to $540 – will be increased from $13,800 to $40,000.
Increased access to tax-deductible contributions – 1 July 2017
Tax-deductible contributions will be permitted for all individuals under the age of 75 who make personal superannuation contributions. This will help those who are self-employed or employed and don’t meet the current 10 per cent income test, or those who work for employers who don’t have salary-sacrificing arrangements.
*Note: the Government had orinlaly planned to scrap the work test for those over 65, but this measure has not been legislated and the work test still applies
Catch-up concessional contributions – 1 July 2018
For those who have taken a break from work, or have previously been low-income earners unable to salary sacrifice into super, the introduction of catch-up concessional contributions could help boost super balances. Any unused portion of the concessional cap can be carried forward on a rolling basis for a period of five years. However, this is only available to those who have super balances totalling less than $500,000.
Removal of the anti-detriment provision – 1 July 2017
Removal of pension payment treatment as lump sum for tax purposes – 1 July 2017
Extending the tax exemption for various types of retirement products – 1 July 2017