On 15 September 2016, the Budget Savings (Omnibus) Bill was debated and amended, with interesting implications for superannuation fund members. Changes came about as a result of pressure from the backbench, amending unpopular elements of the superannuation policy. Treasurer Scott Morrison insists these changes will assist in the implementation of a more fair, flexible, and sustainable superannuation system.
Important changes to the superannuation policy are outlined below:
Please note these changes are not yet legislated, and will need to gain assent before becoming Law.
Non-concessional contributions (NCCs) - From 1 July 2017
The proposed lifetime $500,000 non-concessional contribution (NCC) cap has been replaced by an annual non-concessional $100,000 limit, down from the current $180,000. Individuals under the age of 65 will be eligible to bring forward 3 years ($300,000) of NCCs. However, when individuals reach a total superannuation balance of more than $1.6mil they will be unable to make NCCs.
The work test will continue to apply for individuals aged between 65 and 74, which was previously proposed to be removed. The implications of this are that individuals aged between 65 and 74 will be eligible to make annual NCCs of $100,000 from 1 July 2017 if they meet the work test (i.e. gainfully employed for 40 hours in 30 consecutive days) but cannot use the bring forward option.
Concessional contributions (CCs), contributions tax and catch up CCs
The annual concessional contributions (CCs) cap will be reduced to $25,000 (currently $30,000 and $35,000 if age 50 or over) from 1 July 2017 for all individuals.
Individuals with adjusted taxable income of $250,000 (currently $300,000) will incur 30% tax on their concessional super contributions from 1 July 2017.
Catch up CCs have been deferred for one year until 1 July 2018. From this date, unused CC cap amounts can be carried forward over 5-year periods accrued from 1 July 2018 where total super balance is under $500,000.
Tax deduction for personal super contributions
Individuals under the age of 75 who make personal contributions (including those aged 65 to 74 who meet the work test) will be able to claim a tax deduction for their personal super contributions from 1 July 2017. This means more people will be able to make concessional contributions, providing an alternative to salary sacrificing.
$1.6 million pension cap
From 1 July 2017, there will be a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax‑free retirement phase. Subsequent earnings on balances in the retirement phase will not be capped or restricted. Accumulated super in excess of $1.6mil can be retained in a member's accumulation account (with earnings taxed at 15%) or moved outside super.
Low income superannuation tax offset (LISTO)
From 1 July 2017, the low income super contribution (LISC) will be replaced with the low income superannuation tax offset (LISTO). The LISTO effectively refunds the tax paid on concessional contributions by individuals with a taxable income of up to $37,000 – up to a cap of $500. Without the offset, low income earners would pay more tax than if they earned the income directly.
Spouse contributions and tax offset
Currently individuals can only make spouse contributions where the receiving spouse is under age 65 or age 65-70 and working (according to the work test). The income threshold of a low income spouse for the purposes of the spouse contribution tax offset will increase from $13,800 to $40,000 from 1 July 2017, making the current spouse tax offset available to more couples so they can support each other in saving for retirement.
Transition to retirement (TTR)
Individuals who have reached preservation age can still access a transition to retirement (TTR) income stream, but earnings on the amount supporting it will be taxed at 15%.
From 1 July 2017, the Government will extend the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self‑annuitisation products.
Individuals will no longer be able to elect to draw lump sums from their TTR pension to reduce tax.
From 1 July 2017, the Government will remove the anti-detriment provision which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants.
Impact of superannuation reforms
Sustainability measures (data source: Australian Government)
The sustainability measures in the changes to superannuation will affect high earners in the top income decile, which is approximate to 4% of Australia's 16 million superannuation account holders.
Flexibility and fairness measures (data source: Australian Government)
The fairness and flexibility measures are expected to benefit around 25% of fund members in Australia, with groups most likely to be impacted including women, carers, contractors and families.
If you have any questions regarding this article or how the new super changes may affect you, please don't hesitate to give me a call on 08 8120 4877 or email me at email@example.com
Matthew Carberry is a financial adviser at Verve Group ABN 50128787646, an Authorised Representative of Count Financial Limited AFSL 227232.