Proposed Super Changes Move Closer
The Government has announced it will amend some of the super reforms proposed in the May 2016 Federal Budget.
Summary of key amendments:
- The lifetime limit of $500,000 on non-concessional super contributions won’t proceed.
- People aged 65 to 74 will still need to meet a ‘work test’ to be able to contribute to super.
- The opportunity to make ‘catch-up’ concessional super contributions will be delayed by 12 months.
We are disappointed that the proposed $1.6m maximum amount of accumulated superannuation that can be transferred into a tax-free pension has not been abolished (although it is indexed to CPI). Any balance of super above $1.6m can be held in accumulated super, attracting a tax rate of 15% (or 10% CGT for disposal of assets held for more than 12 months). Although many of our clients are worse off with this “reform” we are still strong believers in super, as a tax rate of 15% is far more favourable than tax rates of 30% or 45%.
While an individual has a single pension cap of $1.6m, couples can have $1.6m each or $3.2m. Couples contributions splitting can be a highly effective strategy, especially if you are over 50. Please contact us if you would like further information to ensure you receive maximum tax-free benefits.
At this stage they are not law and could be revised before they are passed by Parliament.
$500k lifetime cap to be scrapped
The original proposal was to replace the existing cap on non-concessional contributions (NCCs) with a lifetime limit of $500,000, including all NCCs made since 1 July 2007 (please see definitions below).
Instead, from 1 July 2017:
- The annual NCC cap will be reduced to $100,000 pa
- Under the ‘bring-forward rule’, if you are under 64, the maximum NCC over a three year period is $300,000, which can be made in a single year, and
- No additional NCCs will be allowed if your superannuation balance is more than $1.6 million.
|Table 1 – NCC cap
||From 1 July 2017
|$180,000 pa or $540,000 over a three year period if certain conditions are met
||$100,000 pa or $300,000 over a three year period if certain conditions are met
If these reforms go ahead, the vast majority of Australians will still be able to make additional NCCs. Also, most people will still have the opportunity to contribute some (or all) of the proceeds from an inheritance, downsizing the family home or other lump sum payment.
Contributions between 65 and 74
Currently, you need to work 40 hours in 30 days in the relevant financial year to make super contributions between 65 and 74. On Budget night, the Government announced they would remove this ‘work test’, but are no longer proceeding with this change.
‘Catch-up’ concessional contributions
The Government will continue with the proposal to reduce the cap on concessional contributions (CCs) to $25,000 pa from 1 July 2017. However, the start date for making ‘catch-up’ CCs will be delayed by 12 months to 1 July 2018.
Under the ‘catch-up’ rules, it will be possible to contribute more than the annual CC cap if you haven't fully utilised the cap in previous years and your super balance is $500,000 or less. This is done by allowing unused cap amounts to be carried forward for up to five consecutive years.
|Table 2 – CC cap
||From 1 July 2017
||From 1 July 2018
|$30,000 pa if age 48 or under
as at end of previous financial year
$35,000 pa if age 49 and over
as at end of previous financial year
|$25,000 pa for everyone
‘Catch-up’ contributions exceeding the cap can be made if certain conditions are met
Budget super proposals not amended
At this stage, the Government has indicated they intend to proceed with the other super proposals announced in the Federal Budget. These include:
- Introducing the Low Income Superannuation Tax Offset which operates in the same way as the Low Income Superannuation Contribution which was otherwise due to expire 30 June 2017.
- An extension in the eligibility for individuals to claim a tax offset when making super contributions for a low-income spouse by increasing the spouse low-income threshold.
- The ability to claim personal super contributions as a tax deduction, regardless of employment arrangements.
- The requirement for people with incomes greater than $250,000 (currently $300,000) to pay an additional 15% tax on CCs.
- The introduction of a lifetime limit of $1.6 million on the amount of superannuation that can be transferred into ‘retirement phase’ accounts (as mentioned above).
- An increase in the tax paid on earnings on investments held in ‘transition to retirement’ pensions from 0% to 15%.
Some of these changes may result in the opportunity to make additional contributions to super, especially before the new proposals take effect on 1 July 2017. However, in the absence of legislation, we recommend you seek our advice before acting.
To find out more about the super proposals and how it will effect your individual circumstances, please contact us on 08 9227 6300 or firstname.lastname@example.org.
Bring-forward rule allows up to three years of NCCs to be made in a financial year if you are age 64 or less and other conditions are met.
Concessional contributions include all employer contributions (such as superannuation guarantee and salary sacrifice contributions), personal contributions claimed as a tax deduction and certain other amounts.
Non-concessional contributions include contributions you make from your after-tax pay or savings, contributions made into super on behalf of your spouse and certain other amounts.
Important information and disclaimer
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.
Information in this publication is accurate as at the date of writing (September 2016). In some cases third parties have provided the information to us. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.
Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law.