07/04/2017
Superannuation Changes - How will they Affect You?
The Government’s broad ranging reforms to superannuation passed through Parliament on 23 November 2016. These significant changes are designed to improve the fairness, sustainability, flexibility and integrity of the superannuation system.
Many of these reforms come into effect on 1 July 2017. It is important to understand how the changes might affect you so that you don’t miss out on the opportunities available now.
Below is an overview of the changes you can expect:
1. Reduction in non-concessional contribution caps
For individuals aged under 65 (and not yet retired) building your super balance is incredibly important. From 1 July 2017, the annual non-concessional contributions cap will be reduced to $100,000 (from the current $180,000).
This means that if you are approaching retirement age, you have until 30 June 2017 to use the current caps and contribute up to $540,000 this financial year.
2. Non-concessional contributions capped at $1.6 million
For individuals with super balances that have reached $1.6m or above, from 1 July 2017 you will no longer be able to make non-concessional contributions. So, you have until then to maximise your contributions. Going forward, your super balance will be assessed at 30 June each year.
3. Concessional contributions cap reduced
From 1 July 2017, the annual concessional contribution cap will be reduced to $25,000 for everyone (currently you can contribute $30,000 if you are aged under 50 and $35,000 if you are aged 50 and over).
4. 30% tax on super extended to more taxpayers
High income earners with incomes of $300,000 or more pay 30% tax on contributions they make. From 1 July 2017, this income threshold will reduce to $250,000.
5. Tax concessions limited to pension balances up to $1.6 million
The introduction of a $1.6m ‘transfer cap’ will limit the amount you can hold in a tax-free environment. This means that if you are a retiree in pension phase, the balance of your pension needs to be no more than $1.6m. Your overall super balance can be more than $1.6m but only $1.6m can be transferred into a tax-free pension.
6. Earnings on fund income are no longer tax-free
From 1 July 2017, the income received from assets supporting transition to retirement income streams will no longer be exempt from tax. These earnings will instead be included in the fund’s assessable income and taxed in a similar way as accumulation accounts.
7. Lump sum withdrawals no longer meet minimum pension requirements
The Government has closed a quirk in the superannuation system that allowed people under 60 to withdraw from their pension and in certain circumstances have that withdrawal treated as a tax-free lump sum
8. Allowing personal concessional contributions regardless of employment
There is good news if you are partially self-employed and partially a wage earner. Currently, to claim a tax deduction for your super contributions you need to earn less than 10% of your income from salary or wages. From 1 July 2017, the 10% rule will be abolished.
9. ‘Catch up’ super contributions
Generally, annual caps limit what you can contribute into superannuation. The reforms allow people with broken work patterns to make ‘catch up’ payments towards their concessional super contributions. From 1 July 2018, people with super balances below $500,000 will be able to rollover their unused concessional caps for up to 5 years.
10. Tax offset for low income earners
A new Low Income Superannuation Tax Offset (LISTO) will be available to individuals with an adjusted taxable income less than $37,000. The offset refunds any tax paid on super contributions for an income year, capped at $500.
11. Extending the tax offset for topping up your spouse’s super
Currently, if your spouse earns less than $10,800, you can claim a tax offset of up to $540 if you make super contributions on their behalf. This offset is being extended to spouses who earn up to $40,000.
For more information:
https://www.ato.gov.au/individuals/super/super-changes/
https://www.ato.gov.au/Super/Self-managed-super-funds/Super-changes-for-self-managed-super-funds/
If you would to discuss tax planning options or would like more information on any of these changes, please contact us on (02) 4942 0200.
General Advice Warning: The information provided is of a general nature only and has been prepared without taking into account your financial objectives, situation or needs These should be considered before you act on any information considered in this article and you may want to seek independent professional advice before making a decision.
