The 2016-17 Federal Budget contains a number of measures which if, if legislated, will impact on many of our current retirement planning strategies. Here we examine the proposed changes to superannuation and how it may effect you.
The Government has introduced a series of dramatic changes to the concessional tax status of superannuation.
Lifetime cap on non-concessional contributions
A lifetime $500,000 non-concessional contributions cap will be introduced from Budget night. The current system of annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65), will be replaced with this new lifetime cap. The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence on 3 May 2016. Contributions made before commencement will not result in an excess but excess contributions made after commencement will need to be removed or will be subject to penalty tax.
Concessional contributions cap changes
The current concessional contributions cap will reduce to $25,000 from 1 July 2017, regardless of age. However, if your superannuation balance is less than $500,000, you will be able to make additional concessional contributions if you have not reached your concessional contributions cap in previous years. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.
Concessional contribution caps
|Age||Annual Cap Amount|
|in 2015/16 and 2016/17||From 2017/18|
|48 or under||$30,000||$25,000|
|49 or over||$35,000||$25,000|
Tax Exemption on Transition to Retirement Income Stream Earnings removed
The tax exemption on the earnings of investments in Transition to Retirement Income Streams will be removed from 1 July 2017 and earnings will be taxed at 15%. The rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes will also be removed.
30% Tax on super for high income earners
Broadly, an additional 15% tax on concessional contributions will be payable from 1 July 2017 by those earning more than $250,000. Currently this additional tax only applies to those earning more than $300,000 per year.
Tax on concessional contributions
|Income1||Tax on concessional contributions made within the cap|
|in 2015/16 and 2016/17||From 2017/18|
|$250, 000 to $300,000||15%||30%|
1 Including concessional contributions
Tax free super balances capped at $1.6m
A lifetime limit of $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free. Where an individual accumulates member benefits in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%). Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.
Tax deductions on super contributions expanded
Tax deductions will be able to be claimed for personal contributions regardless of employment status. Currently only self-employed people (e.g sole traders) and those who earn less than 10% of their total income from employment sources are eligible to claim a tax deduction.
Removing contribution restrictions for those 65 to 74
Those aged between 65 and 74 will be able to make super contributions regardless of whether they work or not. Currently, you need to work 40 hours in 30 days of the financial year to make super contributions in this age bracket.
Tax back for low income earners contributing to super
A Low Income Superannuation Tax Offset (LISTO) will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low-income earners, up to a cap of $500. The LISTO applies to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.
Boosting the super balance of your spouse
The low-income spouse superannuation tax offset income threshold will increase to $37,000 (from $10,800) from 1 July 2017. The offset provides up to $540 per annum for the contributing spouse.
For more information on how the proposed Budget may affect your Superannuation and retirement plans , please feel free to contact our Financial Planning Team.