A range of superannuation changes are proposed to commence from 1 July 2017. While at the time of writing they are yet to be passed into law and may still change, you may want to discuss concerns on these issues with your adviser.
Non-concessional (after tax) contributions
Under current rules, an annual cap of $180,000 (or up to $540,000 for those under 65) applies to non-concessional contributions, such as personal super contributions made from after-tax income and your own savings.
From 1 July 2017, this may reduce to $100,000 per year, with the ability to bring forward future year contributions still available for those under 65. Non- concessional contributions will not be allowed if your total superannuation balance exceeds $1.6million.
Any excess non-concessional contributions over these limits will need to be refunded or harsh penalty tax rates of up to 47% plus Medicare Levy may apply.
Concessional (before-tax) contributions
For concessional contributions, (such as Super Guarantee contributions, tax deductible contributions and pre-tax salary sacrifice contributions), the contributions cap will reduce to $25,000 per year for everyone from 1 July 2017. There will no longer be a higher cap for those 50 and over. Commencing from 1 July 2018, if your superannuation balance is less than $500,000, you will have the ability to carry forward any unused concessional contribution cap over a rolling five year period.
Currently, if you earn over $300,000 per year (total income plus non-excessive concessional contributions), you are required to pay a tax of 30% on concessional contributions. This income threshold will reduce to $250,000 from 1 July 2017 resulting in more high income earners being required to pay the 30% rate.
Restrictions lifted on who can claim super tax deduction
From 1 July 2017, there will be no employment restriction placed on who can claim a tax deduction for personal superannuation contributions, (so this opportunity is no longer restricted to the self- employed).
$1.6 million limit on transferring superannuation to a retirement income account
From 1 July 2017, a cap of $1.6 million will be placed on the amount of superannuation that you can transfer to a superannuation income stream (e.g. account based pension) where there is no tax on the earnings. The balance of your superannuation will be required to remain in an accumulation account where earnings are taxed at a maximum rate of 15% or must be withdrawn.
If you already own a superannuation pension with a balance greater than $1.6 million, you will be required to transfer the excess amount back to superannuation or withdraw the funds by 1 July 2017.
Transition to retirement pension changes
A Transition to Retirement (TTR) pension can be commenced with preserved superannuation funds once you reach preservation age even if you are still working. From 1 July 2017, the current tax exemption on earnings generated within a TTR pension will be removed. Instead, the tax rate on earnings will be 15%.
The tax treatment of income payments received from a TTR pension will not change (e.g. tax free income for those 60 and over).
Income threshold increases for spouse contributions
The tax offset for contributions to superannuation on behalf of your spouse earning less than $13,800 p.a. is proposed to increase to $40,000. The maximum tax offset of $540 per year will be available where the spouse’s income is less than $37,000 p.a.
Super tax offset available for low income earners
A Low Income Superannuation Tax Offset will apply from 1 July 2017 which will replace the existing Low Income Superannuation Contribution. This tax offset (up to a maximum of $500), will be used to reduce the contributions tax on concessional contributions and is available if your adjusted taxable income is less than $37,000.
Additional death benefit payment abolished
From 1 July 2017, the additional payment that is sometimes available when a death benefit lump sum is received (known as the anti-detriment payment), will be abolished.
Members of Defined Benefit Schemes
The Government has announced that they will also make changes for members of defined benefit schemes and constitutionally protected funds to ensure that the new super reforms broadly apply to these groups as well.
Work test to still apply for those 65 to 74
There was a proposal to abolish the work test that currently applies to those between 65 and 74, which required them to be gainfully employed for at least 40 hours in a 30 day period to make personal contributions to superannuation. This proposal has now been withdrawn.
Your adviser is ready to answer any queries you may have on any of these issues.