The ‘Fair and Sustainable Superannuation’ package announced in the 2016/17 Budget contains the most significant superannuation changes since 2007. Many of these proposals became law on 29 November 2016.
In this article I summarise what these changes could mean for you. In following articles, I will cover certain aspects of these changes in more detail.
The Commonwealth’s Treasurer, The Scott Morrison, touted the reforms will make Australia’s superannuation system fairer, more flexible and more sustainable.
The key measures in the ‘Fair and Sustainable Superannuation’ package are listed below, with a comparison of the current rules:
|Current rule||Change from 1 July 2017 (unless stated otherwise)|
|Balance transfer cap||Does not exist||The introduction of a $1.6 million transfer balance cap which:
|Transition to Retirement pensions||Currently earnings from assets supporting Transition to Retirement pensions are tax exempt. This includes income and capital gains.||Earnings on assets that support Transition to Retirement pensions will be taxed at up to 15 per cent (i.e. the same rate applying to earnings on assets in the accumulation phase).|
|Annual concessional (pre-tax) contributions cap||$30,000 – under age 49 at 30 June of the previous year
$35,000 – age 49 or over at 30 June of the previous financial year
|$25,000 will apply for all individuals under age 75.|
|Division 293 income threshold (30 per cent tax on super contributions applies)||$300,000 threshold||$250,000 threshold|
|’10 per cent rule’ for personal concessional contributions||Currently individuals are required to earn less than 10 per cent of their total income from employment sources in order to claim a tax deduction for their own personal super contributions.||The ‘10 per cent’ rule will be abolished.
All individuals under age 75 will be able to claim a tax deduction for their personal concessional super contributions, regardless of the employee/ self-employed distinction. (Those age 65 to 74 must meet a separate work test)
|Catch up of concessional contributions||Not available||Commences 1 July 2018
Unused concessional contributions up to the concessional contribution cap can be carried forward for up to five years.
Catch up of concessional contributions are only allowed if your total superannuation balance does not exceed $500,000 at 30 June of the previous year.
|Annual non-concessional (after-tax) contribution cap||$180,000 under age 75 (those aged 65 to 74 must meet a separate work test)||$100,000 under age 75 (those aged 65 to 74 must meet a separate work test)
Non-concessional contributions can only be made if your superannuation balance does not exceed $1.6 million at 30 June of the previous year.
|Bring forward rule – up to three years of non-concessional contributions (only if under age 65 on 1 July)||$540,000
Transitional rules apply if the bring forward rule was triggered in 2015/16 or 2016/17 and the full limit of $540,000 has not been utilised before 1 July 2017.
Transitional rules apply where the bring forward rule was triggered in 2015/16 or 2016/17.
|Spouse tax offset||The maximum tax offset is available when the receiving spouse’s assessable income is below $10,800 and no offset available when their income exceeds $13,800.||The maximum tax offset is available if the receiving spouse’s assessable income is below $37,000 and cuts out completely when their income reaches $40,000.
No spouse contribution can be made when the receiving spouse’s superannuation balance exceeds $1.6 million at 30 June the previous financial year, or they have exceeded their non-concessional contribution cap.
For those of you that fancy reading the legislation, the relevant Act is the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016.
The impact of the complexity and timing of the above superannuation reforms should be considered against your retirement plans. Timing is of the essence given that most of the reforms commence from 1 July 2017 and place restrictions on contributions and other concessions.
Click here if you would like to pose a question about these reforms to a qualified financial adviser or for more specific advice click here to make a free appointment with a Spring Financial Group expert. There is no cost to the first introductory meeting.