14 February 2017
Overview of the super changes
In the May 2016 Budget the Government announced a number of changes to the superannuation system. These changes have now received Royal Assent and most take effect from 1 July 2017. A synopsis of the changes is outlined below.
Reduction of concessional contributions cap to $25,000 per annum
From 1 July 2017, the annual concessional contributions cap is reduced to $25,000 for all individuals. The cap will index in line with wages growth.
For the 2016/17 year, the concessional contribution cap for individuals is $30,000 and $35,000 for people aged 49 or over at the start of the year.
Reduction of non-concessional contributions cap to $100,000 per annum
From 1 July 2017, the annual non-concessional contributions cap is reduced from $180,000 to $100,000. The cap will be increased in line with the concessional contributions cap.
For people aged between 65 and 74 years old, they will need to pass the work test (40 hours in any 30 day period during the year) to be eligible to make non-concessional contributions.
Individuals with greater than $1.6 million in superannuation as of 1 July 2017 are not eligible to make any further non-concessional contributions. The $1.6 million threshold will be increased in line with CPI in $100,000 increments and applies at the start of a financial year.
The three year bring forward rule is still available for people under 65 years old during a financial year to make contributions greater than the annual cap (up to $300,000 if eligible). There is a transitional arrangement in place if the bring forward rule has been triggered in the 2015-16 or 2016-17 years and not fully utilised.
Carry forward of unused concessional contributions cap
From 1 July 2018, individuals will be able to make concessional contributions above the $25,000 annual cap if they have not fully used the cap in prior years and they have a superannuation balance of less than $500,000 at the time of making the contribution.
This carry forward amount is measured on a rolling basis over 5 years. This means a concessional contribution of up to $125,000 can be made in 2022-23 financial year if no other concessional contributions had been paid in the previous 4 years.
Personal contributions deduction
Currently an individual can claim a deduction for personal contributions if less than 10% of their assessable income is from salary and wages. From 1 July 2017 the 10% rule is removed and all individuals can claim a deduction up to the concessional contributions cap, taking into account any employer contributions received during the year.
This measure will be an advantage to those whose employers do not offer salary sacrifice into superannuation or who are erroneously treated as contractors. It will also provide opportunities to those employees who may wish to top-up their concessional contributions on an ad-hoc basis e.g. to reach the annual cap or to offset a capital gain in a particular year.
Reduction of Division 293 income threshold to $250,000
From 1 July 2017, the Division 293 income threshold will be lowered from $300,000 to $250,000 where the rate of tax on concessional contributions is increased to 30%. The threshold test is based on an individual’s adjusted taxable income plus concessional super contributions, with the excess above $250,000 subject to an additional 15% tax on the concessional contributions amount.
Spouse Tax Offset
From 1 July 2017, a contribution made by an individual to a spouse’s super fund may be eligible to claim a tax offset of 18% up to $540, as long as the spouse’s assessable income plus reportable fringe benefits plus reportable employer super contributions is under $37,000.
The previous threshold was $13,800. This offset phases out at $40,000.
Pension balance cap of $1.6 million
From 1 July 2017, there is a cap of $1.6 million that can be used to commence a tax free retirement income stream. The cap will be indexed in line with CPI and increased in $100,000 increments.
For individuals who have already commenced an account based superannuation income stream (account based pension) prior to 1 July 2017 and the balance of these accounts on 30 June 2017 is greater than the cap, they will be required to commute the excess above $1.6 million back to accumulation phase on or before 30 June 2017. The individual may also chose to withdraw the excess amount from their superannuation account on or before 30 June 2017.
The government has introduced CGT relief for superannuation funds that currently have members with balances greater than $1.6m in account based superannuation income streams. The CGT relief provisions will preserve the tax free status of capital gains accrued but not yet realised on assets held throughout the pre-commencement period (9 Nov 2016 to 30 Jun 2017).
Transition to retirement income streams
From 1 July 2017, earnings on assets held in a superannuation fund that are used to pay a transition to retirement income stream (TRIS) will no longer be exempt from tax. The earnings on these assets will be taxed at 15% from this date.
The government has introduced CGT relief for superannuation funds that currently have members with TRIS accounts, similar to the way it will operate for account based superannuation income stream assets greater than $1.6 million, in that unrealized gains on assets supporting the TRIS will be preserved.
Low income super tax offset contribution
The Low Income Super Tax Offset has been introduced to replace the Low Income Superannuation Contribution for individuals with adjusted taxable incomes of up to $37,000. The government will contribute up to $500 per year to cover the 15% tax on concessional contributions for eligible persons.
Removal of anti-detriment payments
From 1 July 2017, superannuation funds will no longer be able to claim a deduction for anti-detriment payments made as part of a death benefit payment to a dependant.
How can we help?
If you are concerned that the Government’s changes to superannuation are going to affect you, please feel free to contact AR Advisors to arrange a time to meet so that we can discuss your particular requirements in more detail.