Superannuation has been a strong focus in the 2016 Federal Budget and given the incredible amount of media and political scrutiny taking place in the lead up to the election, our Financial Services team have concentrated on key strategies that may benefit you in this live webinar recording.
Nexia Top 10 Superannuation Changes
1. Catch-up concessional superannuation contributions
What is the proposal?
Individuals will be able to make additional pre-tax contributions if:
- they have not reached the contributions caps in prior years – for example, because they have been out of the workforce while caring for their children
- they have a superannuation balance of less than $500,000.
What does this mean for you?
This is an equity measure, especially targeted at women – people who have been out of the workforce can access the same superannuation benefits as those that were in the workforce. However, note that a catch-up contribution cannot be made any later than 5 years after the year of the undercontribution.
Applies from 1 July 2017
2. Harmonising contribution rules for those aged 65 to 74
What is the proposal?
The work test will be abolished for people over 65 years and under 75 years.
What does this mean for you?
Individuals under 75 will be able to receive contributions from their spouse even if they have not worked during the income year.
Applies from 1 July 2017
3. Improve superannuation balances for low income spouses
What is the proposal?
The Government will increase the capacity for spouses to make contributions to each other’s superannuation funds by lifting the income threshold for the receiving spouse from $10,800 to $37,000.
What does this mean for you?
If an individual is a high income earner with a stay-at-home or low income spouse, they can make after tax contributions to their spouse’s superannuation fund.
Applies from 1 July 2017
4. $1.6 million superannuation transfer balance cap
What is the proposal?
Self-funded retirees will be only be able to transfer $1.6 million into their pension accounts (usually from their accumulation accounts). Earnings on amounts in the limited pension accounts will not be restricted.
If a self-funded retiree already has more than $1.6 million in their pension account, the account balance must be reduced - the excess amounts may be transferred to accumulation accounts where they will be taxed at the concessional rate of 15%.
What does this mean for you?
The Government believe that a balance of $1.6 million in a pension account could support an income stream of approximately four times the single age pension – this presumes an earning rate of 5% on $1.6 million. The main benefit of retaining amounts above $1.6 million in a superannuation fund is to enjoy the concessional rate of tax of 15% on earnings and possibly refunds of franking credits. This new capping regime may cause many retirees to spend the amount over the cap because they can no longer convert that amount into a pension.
Applies from 1 July 2017
5. Lifetime cap for non-concessional superannuation contributions
What is the proposal?
Individuals up to the age of 74 years will be limited to a $500,000 lifetime cap for non-concessional contributions. Such contributions will be measured as far back as 1 July 2007
What does this mean for you?
The current non-concessional contributions limits of $180,000 per year or $540,000 over three years have been discarded. So if an individual was thinking about making significant contributions to superannuation over the coming years, their plans will be significantly curtailed. That said, apparently only 1% of superannuation fund members have made non-concessional contributions of greater than $500,000 since 2007.
Applies from 7.30pm on 3 May 2016
6. Low Income Superannuation Tax Offset
What is the proposal?
The superannuation funds of individuals with an adjusted taxable income of $37,000 or less will receive a non-refundable tax offset of up to $500 against tax paid on concessional superannuation contributions.
What does this mean for you?
The proposal means that low income earners will not pay more tax on their superannuation contributions than had they earned that amount of income outside of superannuation.
Applies from 1 July 2017
7. Reforming the taxation of concessional superannuation contributions
What is the proposal?
There are two elements to this proposal:
- Concessional (pre-tax) superannuation contributions will be capped at $25,000 per year for everyone; and
- The current 30% contributions tax payable by people with income of greater than $300,000 will apply to income of $250,000. This rate exceeds the normal contributions tax rate of 15%.
What does this mean for you?
Tax concessional contributions to superannuation will be limited to $25,000, down from $30,000 for individuals under 50 years of age, and from $35,000 for individuals 50 and over.
The income threshold for determining whether an individual is liable to additional contributions tax has been lowered from $300,000 to $250,000. Concessional contributions still offer a tax concession of 19% for those paying Division 293 tax so its unlikely to significantly reduce the level of concessional contributions.
Applies from 1 July 2017
8. Removal of the anti-detriment provision in respect of death benefits from superannuation
What is the proposal?
The ‘anti-detriment provision’ will be removed. This provision can result in a superannuation fund member’s lifetime superannuation contributions tax payments being refunded to their estate, where the beneficiary of the estate is the dependant of the member.
What does this mean for you?
For some deceased estates this will result in a lost refund of contributions tax. This unusual concession was rarely used and, from a tax policy perspective, was difficult to justify. Individuals who are eligible to contribute could consider the withdrawal and recontribution strategy.
Applies from 1 July 2017
9. Transition to Retirement Income Streams
What is the proposal?
Income derived from assets supporting transition to retirement income streams will no longer be tax exempt for people of any age.
What does this mean for you?
If an individual reaches their preservation age, the income derived from assets supporting their pension will not be tax free unless they have met the full the full condition of release.
Applies from 1 July 2017
10. Tax deductions for personal superannuation contributions
What is the proposal?
All individuals up to age 75, regardless of their employment circumstances, will be able to claim a tax deduction for personal superannuation contributions up to a $25,000 cap.
What does this mean for you?
The effect of the current law is that only self-employed (or substantially self-employed) people can make tax deductible superannuation contributions. This means that employees generally make additional contributions by way of salary sacrifice arrangements. The new law will provide employees more flexibility and allows them to make personal deductible contributions in addition to super guarantee and salary sacrifice contributions, to use up any unused concessional contribution cap at year end.
Applies from 1 July 2017
