On September 15 2016, Treasury announced updates relating to the superannuation changes it had proposed in the May Federal Budget. The latest revisions come as a welcome relief to some still wanting to make after-tax contributions into superannuation.
See the full Treasury announcement and facts on the Treasury website. Below is a brief guide to the latest changes proposed and their status.
Which initial May Budget announcements are changing?
- The proposed $500,000 lifetime cap on non-concessional contributions dating back to 1 July 2007 has been scrapped and replaced with a new $100,000 limit per year from 1 July 2017 (provided the member’s balance is below $1.6 million at the end of the previous year that they make the contribution). Subject to the $1.6 million balance restriction, the 3-year ‘bring forward rule’ remains post 1 July 2017 (ie you can contribute $300,000 in one year for 3-year period), recognising that for many people these contributions can be lumpy. It is important to note that the current legislated limits apply up to 30 June 2017 (ie $180,000 per year or $540,000 using the bring forward rule for those eligible). For many, this may be one of the last opportunities to make after-tax contributions into superannuation.
- The ability to make catch up concessional contributions if the $25,000 cap is not used each year (5-year basis and $500,000 member balance limit) has been pushed back 12 months, with a starting date of 1 July 2018 rather than 1 July 2017.
- The proposal to remove the ‘work test’ (40 hours in 30 days gainful employment) for people aged 65–74 contributing into superannuation has been abolished. Going forward (as is currently the case) people between the ages of 65-74 must meet the work test if they wish to make a contribution into superannuation.
Which Budget announcements remain intact?
The following changes announced from budget night will remain (all starting 1 July 2017):
- A $1.6m superannuation ‘balance transfer cap’: This is the total amount of accumulated super an individual can transfer into pension/retirement phase, meaning that the earnings supporting this pension will be tax free and the excess taxed at 15%. Please note this is on a per member basis, not on a total fund balance basis.
- Deducting personal super contributions: in draft legislation at time of writing. Any individual up to age 75 will be able to claim a tax deduction on personal contributions to a Super Fund. Currently, to claim a personal tax deduction for a super contribution, the person claiming must satisfy a 10% test, where no more than 10% of their total assessable income comes from salary/FBT/salary sacrificed super.This change could be particularly useful or easier for some salary & wage earners (particularly where they don’t have the ability to salary sacrifice) to claim a deduction for contributions. It would also allow some workers to catch up on super contributions later in their working life.
- A reduction in the concessional cap to $25,000 per annum for all members regardless of age.
- Transition to retirement pensions
- Removal of the tax free earnings status at the fund level
- Removal of the ability for payment out of the fund to be received/taxed as a lump sum.
What is in draft legislation? (at the time of writing)
- Legislating the primary objective of Superannuation system – which is to ‘Provide income in retirement to substitute or supplement the age pension’
- Deducting personal super contributions – as detailed above
- Tax offsets for spouse contributions – where the higher income spouse can contribute $3,000 for the spouse and claim full 18% tax offset provided spouse adjusted taxable income does not exceed $37,000 from 1 July 2017 (up from previous limit pre 1 July 2017 of $10,800)
- Low income tax Superannuation offset – to continue on post 1 July 2017. This is an offset in place to ensure low income earners (adjusted taxable income of below $37,000) do not pay more tax on their concessional contributions that what they would have if they received the money as salary & wages in their own hands.
If you need clarification on the above Superannuation measures, please contact your local Accru Adviser.