Superannuation Reforms – BIG changes ahead
The current superannuation reforms represent arguably the single biggest change to superannuation since its inception. While there has been a softening of the original Budget announcements, there are still some very big changes coming your way.
There are some great opportunities available this financial year before many of the reforms kick in from 1 July 2017 – in particular, the ability to contribute up to $540,000 in non-concessional (after tax) contributions, using the bring forward provisions. NB: conditions apply – please contact us to determine what amount you are eligible to contribute.
Below is a list of the proposed reforms as they currently stand. Please don’t hesitate to contact Shona at our office should you have any queries.
Accumulators: Under 65s
Reduction in non-concessional contribution caps
- For those of you close to retirement, this change in the reform 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 – you have until 30 June 2017 to use the current caps and contribute up to $540,000 into your super this financial year.
‘bring forward’ rule
- This rule allows you to bring forward up to three years worth of non-concessional contributions in one year (conditions apply).
- The advantage of this rule is that you can contribute your three years’ worth of contributions utilise the current caps this financial year.
- If you contribute more than $180,000 this financial year but not the full $540,000, you still trigger ‘the bring forward rule’ but any further contributions from 1 July 2017 are subject to the new $100,000 cap.
People with Large Super Balances & High Income Earners
The Government wants to ensure that people are using superannuation for its intended purpose – to fund retirement.
As such from 1 July 2017 the following proposed measures are:
Non-concessional contributions capped at $1.6 million
Once your super balance has reached $1.6m, you will no longer be able to make non-concessional contributions to super. The balance will be as at 30 June the previous year.
Concessional contributions cap reduced
Annual concessional contribution cap will be reduced to $25,000 for everyone. (Currently $30,000 – people aged under 50 and $35,000- people aged 50 and over).
30% tax on super extended to more taxpayers
High income earners with incomes of $300,000 or more currently pay 30% tax on super contributions made, this will be reduce to $250,000.
Retirees and those Transitioning to Retirement
Tax concessions limited to pension balances up to $1.6 million
The reforms introduce a $1.6m ‘transfer cap’ on the amount you can hold in a superannuation pension account (ie the maximum balance that can take advantage of income tax exemption. Investment income on the balances over and above the $1.6m threshold will be subject to the concessional income tax rate of 15% – therefore keeping the excess balance in super is still likely to be tax advantageous to you due to this low tax rate.)
Transition to Retirement (TTR): Earnings on fund income no longer tax-free
From 1 July 2017, the current investment income tax exemption on assets supporting a TTR pension will be removed.
Lump sum withdrawals no longer meet minimum pension requirements
From 1 July 2017, the Government will no longer allow people under 60 to take a lump sum from their pension. Generally, from age 60 these pension payments become tax-free.
Still Going: Over 65 and Still Working
Currently, if you are 65 or over and still working, you are only able to contribute to your superannuation fund if you satisfy the work test (work at least 40 hours in a 30 consecutive day period). The original Budget announcements abolished this work test. Unfortunately, this reform is not progressing and the work test will remain.
Removal of the 10% Rule
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.
People with Low Super Balances and Broken Employment
‘Catch up’ super contributions
People with super balances under $500,000, from 1 July 2018 will be able to rollover their unused concessional caps for up to 5 years. Unused cap amounts can be carried forward from the 2018-19 financial year; this means that from 2019-20 you will have the opportunity for this new rule to be used.
Tax offset for low income earners
Low income earners, earning less than $37,000 will have a new tax offset allowing them refunds on any tax paid on their super contributions.
Tax offset for topping up your spouse’s super
Currently, if your spouse has an income less than $10,800 and you make a super contributions your spouse’s behalf, you are able to claim a tax office of up to $540. This offset has been extended to spouses who earn up to $40,000.