The superannuation reforms originally announced in the 2016-17 Federal Budget have passed Parliament. As the majority of the reforms start from 1 July 2017, it’s important to consider how these might impact on you and whether you need to take any action before then.
Some budget announcements such as the $500,000 non-concessional contribution lifetime cap, and the plan to ban the work test for members aged 64 to 75, were not passed and will not go ahead.
At a glance:
| Contribution limits | Current |
From 1 July 2017 |
| Concessional (deductible) Age < 50 |
$30,000 |
$25,000 |
| Concessional Age > 50 |
$35,000 |
$25,000 |
| Non-concessional |
$180,000 |
$100,000 |
| Using Bring Forward Provisions |
$540,000 |
$300,000 |
| Non-Concessional Contributions – member balance over $1.6m |
$180,000 |
$nil |
| CGT Cap for eligible small business owners |
$1.4m |
$1.4m |
| Work test remains for those aged 65 – 74 years. |
| Investment Earnings tax | Current | From 1 July 2017 |
| Accumulation Phase |
15% |
15% |
| Pension Phase |
Tax free – no limit |
Tax free up to $1.6m transfer balance limit. 15% tax on balance |
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The key reforms include:
Accumulation
Non-concessional contributions capped at $1.6 million
Once your super balance has reached $1.6m, from 1 July 2017 you will no longer be able to make non-concessional contributions to super. This does not stop you from making non-concessional contributions in the current 2017 financial year.
Non-concessional contributions reduced to $100,000 per annum (from the current $180,000).
If you are under 65, you have until 30 June 2017 to use the current caps and contribute up to $540,000 this financial year (if eligible). You can do this using the ‘bring forward’ rule that allows you to bring forward up to three years’ worth of non-concessional contributions in one year (and then make no or limited contributions for the next two years).
The advantage of using the bring forward rule now is that your three years’ worth of contributions utilise the current caps. 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.
Does your super pension balance exceed $1.6m at 1 July 2017?
Your overall super balance can be more than $1.6m but only $1.6m can be in a tax-free pension. Keeping the excess balance in super, albeit in accumulation phase, may still be worthwhile because of the low 15% tax rate.
Concessional contributions reduced to $25,000 per annum
More high income earners to pay higher tax rate
High income earners with incomes of $300,000 or more pay 30% tax on super contributions they make, rather than the usual 15%. From 1 July 2017, this threshold will reduce to $250,000.
Transition to Retirement: Earnings on fund income no longer tax-free.
From 1 July 2017, members who have a Transition to Retirement (TTR) in place will no longer be able to take advantage of the tax exemptions on the Fund’s investment income.
Claiming a tax deduction on super contributions
If you are under the age of 75, from 1 July 2017, the 10% wages rule will be abolished, allowing more flexibility to claim a tax deduction for personal superannuation contributions. Currently, you need to earn less than 10% of your income from salary or wages. This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. Note that if you are over 65 you will need to meet the work test to make contributions to super.
‘Carry forward’ unused super cap
Where your superannuation balance is less than $500,000, from 1 July 2018 you will be able to make additional (carry forward) concessional contributions if you have not fully utilised your concessional contributions cap in previous years. With the delayed start date of this reform, the first year that the carry forward amount can be used is 2019-20.
How can we help?
If you are concerned that the Government’s changes to superannuation will affect you, please call me to arrange a time to go over your particular needs in detail.
