CHANGES TO SUPERANNUATION “DO THEY AFFECT YOU? ”
The changes to the superannuation (super) system, announced by the Australian Government in the 2016–17 Budget, have now received royal assent. An overview of the changes is below.
Transfer balance cap of $1.6 million for pension phase accounts
From 1 July 2017, the government will introduce a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions. Superannuation savings accumulated in excess of the cap can remain in a superannuation account in accumulation phase, where the earnings will continue to be taxed at the concessional rate of 15 per cent.
An apportionment approach will be used to determine how much cap space a superannuation member still has available. For example, if a member has previously used 75 per cent of their cap they will have access to 25% of the current (indexed) cap.
Members with accounts already in retirement phase before 1 July 2017 with a balance in excess of $1.6 million will need to either:
- transfer the excess amount to a superannuation account in accumulation phase; or
- withdraw the excess amount from their account.
The cap will be indexed in $100,000 increments in line with the consumer price index (CPI).
Reduction of non-concessional (post-tax) contributions cap to $100,000 per annum
From 1 July 2017, the government will lower the annual non-concessional (after tax) contribution cap from $180,000 to $100,000 per year. This will remain available to members between 65 and 74 years old if they meet the work test.
If you are under 65, you may continue to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year. From 1 July 2017 in order to access the non- concessional bring forward arrangement:
- Members must be under 65 years of age for one day during the triggering year (the first year)
- Members must contribute more than the annual cap ($100,000 for the 2017-18 financial year).
The member’s superannuation balance at 30 June 2016 must be less than $1,500,000 for the 2017-18 financial year (ie. general transfer balance cap of $1.6m less maximum non-concessional amount of $100,000). As mentioned above the general transfer cap will increase with indexation on an annual basis.
During the transitional periods (highlighted in the table below), contributions made prior to 1 July 2017 will affect your total non-concessional contributions capacity over the following two years.
Carry-forward concessional contributions of unused caps over five years
From 1 July 2018, members will be able to make 'carry-forward' concessional super contributions if they have a total superannuation balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years.
Amounts carried forward that have not been used after five years will expire.
The first year in which you can access unused concessional contributions is the 2019–20 financial year.
Reduction of concessional (pre-tax) contributions cap to $25,000 per annum
Currently, members can make concessional (pre-tax) contributions up to $30,000 ($35,000 for people 50 years old and over) within a financial year.
From 1 July 2017, the government will lower the annual concessional contributions cap to $25,000 for all members. The cap will index in line with wages growth.
Personal super contributions deduction
From 1 July 2017 the requirement for less than 10% of your income to be from salary and wages in order to make a Personal super contribution deduction will be removed.
Reduction of Division 293 income threshold to $250,000
From 1 July 2017, the government will lower the Division 293 income threshold from $300,000 to $250,000.
A member with income and concessional super contributions, exceeding the $250,000 threshold will have an additional 15% tax imposed on the amount over the threshold up to the total amount of concessional contributions not exceeding their concessional contributions cap.
Spouse tax offset
From 1 July 2017, the spouse's income threshold will be increased from $13,800 to $40,000.
Members can claim a tax offset up to a maximum of $540 for contributions they make to their spouse's eligible super fund if, among other things, the total of the spouse's assessable income, total reportable fringe benefits and reportable employer super contributions is under $40,000.
Members will not be entitled to the tax offset when the spouse receiving the contribution has exceeded their non-concessional contributions cap for the relevant year, or has a total superannuation balance equal to or exceeding the transfer balance cap immediately before the start of the financial year in which the contribution was made.
Low income super tax offset contribution
From 1 July 2017 a Low Income Superannuation Tax Offset (LISTO) will replace the current Low Income Superannuation Contribution (LISC) policy.
Eligible members with an adjusted taxable income up to $37,000 will receive a LISTO contribution to their super fund and will be equal to 15% of their total concessional (pre-tax) super contributions for an income year, capped at $500.
Improving the integrity of retirement income streams
Transition to retirement income streams (TRIS) are currently available to assist members to gradually move to retirement by accessing a limited amount of super. Currently, where a member receives a TRIS, the fund receives tax-free earnings on the super assets that support it.
From 1 July 2017, the government will remove the tax-exempt status of earnings from assets that support a Transition to retirement income stream (TRIS). Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.
Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
Removal of anti-detriment payment
From 1 July 2017, the government is removing the anti-detriment provision which enables a fund to claim a deduction in their tax return for a top-up payment made as part of a death benefit payment where the beneficiary is the dependent of the person. The top-up amount represents a refund of a member's lifetime super contribution tax payments into an estate.
Super funds may claim a deduction for an anti-detriment payment as part of a death benefit if a fund member dies on or before 30 June 2017. The fund has until 30 June 2019 to pay the benefit. Funds cannot include anti- detriment payments as part of a death benefit if the member dies on or after 1 July 2017.
Innovative retirement income stream products
From 1 July 2017, the government will remove the rules restricting the development of new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.
From1July2017,inadditiontothecurrenteligibilityrequirements, youmustalsohaveatotalsuperannuation balance less than the general transfer balance cap ($1.6 million for the 2017-18 financial year) at the end of 30 June of the previous financial year and must not have contributed more than your non-concessional contributions cap.
Williams Hall Chadwick is a registered tax agent under the Tax Agent Services Act 2009 (Registration No. 75640007).
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