The changes announced in the May 2016 Federal Budget relating to superannuation reform have since been debated and amended. On Wednesday, 23 November 2016, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 was passed by the Senate, leaving only the formality of Royal Assent before becoming law. These changes will significantly impact the ongoing ability to contribute to superannuation and the amount you can hold in tax-free pension phase. However, there is a window of opportunity for contributions, as many of these measures are not scheduled to commence until 1 July 2017.
Due to the changes in the non concessional contributions cap from 1 July 2017, if you are eligible to make non-concessional contributions to super and have not utilised the bring-forward provisions, there is the ability to contribute up to $540,000 prior to 1 July 2017. After this date, you are limited to $100,000 contributions each year, or $300,000 using the reduced bring-forward provisions.
A summary of these changes are highlighted below.
The transfer balance 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.
Lowering the annual non-concessional contribution cap
From 1 July 2017, the Government will lower the annual non-concessional contributions cap to $100,000 and will introduce a new constraint such that individuals with a balance of more than $1.6 million will no longer be eligible to make non-concessional contributions. As is currently the case, individuals under age 65 will be eligible to bring forward three years of non-concessional contributions.
This replaces the $500,000 lifetime non-concessional contributions cap announced in the 2016/17 Budget which was the subject of much controversy as the non-concessional cap amounts were applied retrospectively. The $500,000 lifetime cap has been scrapped and will not apply to any non concessional contributions made in the past, present or future.
Anyone with superannuation balances approaching, or exceeding $1.6m who wish to make additional contributions should consider taking action prior to 1 July 2017.
Changes to concessional contributions
From 1 July 2017, the annual cap on concessional contributions will be reduced to $25,000 for everyone regardless of age (currently $30,000 under age 50 and $35,000 for ages 50 and over). Anybody who is considering additional concessional superannuation contributions have until 30 June 2017 to utilise the current, higher age-based caps.
Allowing catch-up concessional contributions
From 1 July 2018, the Government will help people ‘catch-up’ their superannuation contributions by allowing individuals with account balances of $500,000 or less to rollover their unused concessional caps (for up to 5 years) to use if they have the capacity and choose to do so.
Taxation of concessional superannuation contributions
From 1 July 2017, the Government will allow all individuals under the age of 65, and those aged 65 to 74 who meet the work test, to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.
Reduction in Division 293 (additional tax on superannuation contributions for higher income earners) tax income threshold
The threshold at which high income earners pay additional contributions tax of 15% (Division 293) will be lowered from $300,000 to $250,000.
Ending transition to retirement income streams
From 1 July 2017, the Government will remove the tax exempt status of income from assets supporting transition to retirement income streams. These earnings will now be taxed concessionally at 15%. Individuals will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.
Superannuation tax offsets
A low income superannuation tax offset has been introduced to replace the low income superannuation contribution with a cap of $500.
The spouse superannuation tax offset income threshold has been increased to $40,000 up from $10,800 the amount of the tax offset remains the same at $540.
Abolishing the anti-detriment rule
An anti-detriment payment is an additional lump sum amount that may be paid to an eligible dependant when a lump sum death benefit is paid, representing a refund of the 15% contributions tax that has been paid by the deceased member over their lifetime. From 1 July 2017, Superannuation funds will no longer be able to claim a tax deduction for anti–detriment payments made to eligible dependants.
This change ensures consistent treatment of death benefits across all superannuation funds. Lump sum death benefits paid to eligible dependants will continue to be tax-free.
If you would like any further information about the superannuation reforms and how they may affect you please contact your advisor or one of our North Sydney Accountants.