Super rules take final shape

November 25, 2016

On Wednesday 23rd November 2016, the Turnbull Government passed their superannuation package through Federal Parliament. The tax reforms are designed to limit concessions for wealthy savers and deliver a net $3 billion in savings over four years. The changes are a slightly watered down version of proposals unveiled in the May budget and will mostly come into effect on July 1, 2017.

These will be the most significant changes to superannuation in nearly a decade, with the main measures including: a $1.6 million cap on the amount that can be transferred to a superannuation pension account, a reduction in the annual concessional contributions cap to $25,000, and a lowered income threshold of $250,000 at which individuals pay an additional 15% tax on their concessional contributions.

Read on for more details or download our Super Cheat Sheet.

Transfers to pension accounts capped at $1.6 million

From 1 July 2017, there will be a $1.6 million transfer cap on the total amount of superannuation you can transfer into the tax‑free retirement phase. Future earnings on balances in the retirement phase will not be capped or restricted.

Superannuation savings beyond $1.6 million can remain in an accumulation account, where earnings are taxed at 15 per cent.

Existing retirees will have to bring their pension balances (excluding transition to retirement pensions and structured settlement amounts) under $1.6 million before 1 July 2017. However if you are over your $1.6 million cap on 1 July 2017 by less than $100,000 and you remove this excess by 31 December 2017, you won’t have to pay excess transfer balance tax.

The transfer balance cap will be indexed in line with CPI but only in increments of $100,000, so it is not expected to increase every year.

There are alternative ways to supplement your retirement savings.

To speak with a Mercer financial adviser call 1300 850 580, or book an appointment online

Non‑concessional contributions cap cut to $100,000

From 1 July 2017, the annual non‑concessional contributions cap will be reduced to $100,000, down from the current cap of $180,000.

In addition, individuals with a total superannuation balance (including any pension accounts but excluding structured settlement amounts) of $1.6 million or more will no longer be eligible to make non‑concessional contributions.

As is currently the case, those under age 65 will generally be able to bring forward 3 years of non‑concessional contributions but eligibility will be subject to new balance tests. Also note that special transitional rules apply to determine the remaining limit for bring forwards initiated in 2015/16 and 2016/17.

This policy replaces the proposed $500,000 lifetime cap on non‑concessional contributions announced in the 2016‑17 Budget.

Concessional contributions cap cut to $25,000

The annual limit on concessional contributions will be cut to $25,000 for everyone from 1 July 2017. This is reduced from the current cap of $30,000 for most workers and $35,000 for those aged 50 or over.

Concessional contributions include the Superannuation Guarantee from your employer, salary sacrifice contributions and any contributions that you claim as a tax deduction.

The new limits don’t come into effect until 1 July 2017 so there’s still time to take advantage of the existing, more generous limits.

Speak to a Mercer financial adviser before changing your contribution strategy. Call us on 1300 850 580, or book an appointment online

High-income contribution tax to catch more

From 1 July 2017 people with adjusted taxable income of over $250,000, including any concessional contributions, will pay an additional 15% tax on some or all their concessional contributions.

At the moment only those with an adjusted taxable income of more than $300,000 pay the additional 15% tax, which applies on top of the standard 15% contributions tax payable by the fund.

The additional tax will only kick in if your adjusted taxable income exceeds $250,000. Even allowing for the higher tax, super still offers a discount of about 17% compared to the highest marginal tax rate.

There is a short window of opportunity for those earning $250,000-$300,000 a year to top up their super balance before they are caught by the additional 15% tax.

Call us on 1300 850 580, or book an appointment online

Catch‑up concessional contributions

Those with total super balances of less than $500,000 less will be able to rollover up to five years of unused concessional caps. This measure has been delayed by one year and will now come into effect on 1 July 2018.

The measure is designed to help those who take time out of work, whose income varies considerably from one year to the next, or whose circumstances have changed and are in a position to increase their contributions to superannuation.

If you’re not in a position to make concessional contributions of up to $25,000 a year, you may be able to take advantage of the carryover rules when your income is higher. However you can only carry forward concessional cap space not used in 2018/19 and later years.

Call us on 1300 850 580, or book an appointment online

Legislating the objective of superannuation

The Government will legislate to define the primary objective of the superannuation system: “to provide income in retirement to substitute or supplement the Age Pension”.

The Government says the move will deliver stability by providing an “anchor” for future superannuation reforms.

Introducing the Low Income Superannuation Tax Offset (LISTO)

From 1 July 2017, the Low Income Superannuation Contribution (LISC) will be replaced by the Low Income Superannuation Tax Offset (LISTO).

The LISTO effectively refunds the tax paid on concessional contributions by eligible individuals with adjusted taxable incomes of up to $37,000 – up to a cap of $500.

Widening access to concessional contributions

From 1 July 2017, all individuals under the age of 65, and those aged 65 to 74 who meet the work test, will be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.

Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10 per cent of their income from salary or wages.

Extending the spouse tax offset

From 1 July 2017 the current spouse tax offset will be extended to more couples so they can support each other in saving for retirement.

Currently, a tax offset of up to $540 is available for individuals who make superannuation contributions to their spouses with incomes up to $13,800. Under the new rules the offset will be extended to those whose recipient spouses earn up to $40,000. However the tax offset will no longer be available if the receiving spouse has a total superannuation balance of $1.6 million or more or exceeded their non-concessional contributions limit for the year.

Conditions include that the spouse receiving the contribution must be under age 70 and meet a work test if they are aged between 65 and 69.

Transition to retirement changes

From 1 July 2017 the tax exempt status of income from assets supporting a transition pension will be removed. However, transfers to a transition pension will not count towards the pension transfer cap, as they don’t benefit from tax-free earnings

Individuals will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.

Abolishing anti‑detriment payments

From 1 July 2017, the Government will remove the anti-detriment provision which allows superannuation funds to claim a tax deduction if they pay an additional amount on top of a death benefit paid to eligible dependants. This effectively means that funds will no longer pay this additional amount.

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