Yesterday the Federal Government handed down the budget for the 2016-17 year that includes some of the biggest changes to the superannuation system since 1 July 2007. The budget announcements are still only proposals at this stage and will depend on the outcome of the upcoming election and on the proposals being legislated. Below is a summary of the main proposed superannuation changes;
Concessional Contribution Cap (CCC) Reduced to $25,000
At present the Concessional (tax deductible) Contribution cap is $30K per financial year for clients under age 50 and $35K per financial year for ages 50 and over. The proposal is from 01/07/2017 the cap will be reduced to $25K for everyone, regardless of age.
Catch-Up Concessional Contributions
Effective 01/07/2017, unused CCC amounts will be able to be carried forward on a rolling basis over 5 consecutive years from 01/07/2017. Access to unused CCC amounts will be limited to individuals with a super balance of less than $500K. The Government is using this measure to allow those who take breaks from work the opportunity to “catch up” if they have the capacity or choose to do so.
Lifetime Cap for Non- Concessional Contributions (NCC)
NCC’S relate to contributions you are putting into super in after tax dollars and where you are not claiming a tax-deduction. This is one of the biggest proposals in addition to the $1.6MIL transfer cap and effective 7:30 pm (AEST) 03/05/2016. The Government is looking to impose a $500K lifetime NCC cap which is back dated to 01/07/2007. This replaces the existing NCC caps which allow clients to put in up to $180K per financial year or $540K over a rolling 3 year period for clients aged under 65. Clients that have exceeded the cap will need to remove their contributions or be subject to current penalty tax arrangements.
Remove Contribution Eligibility Requirements for those Aged 65 to 74
At present, clients over age 65 wanting to make contributions into super need to qualify for a work test. This test is being removed and will now allow all clients under 75 to contribute to super without a work test. This proposal is effective 01/07/2017.
Introduce a $1.6MIL Superannuation Transfer Balance Cap
This proposal is effective 01/07/2017 and is designed to restrict the total amount of super that can be transferred from accumulation to pension phase to $1.6MIL. If a client accumulates more than $1.6MIL they will be required to transfer the excess back to accumulation phase where earnings are taxed at the concessional rate of 15%.
Additional 15% Contributions tax: Threshold reduces to $250K
Currently, this additional tax applies to clients who are earning above $300K p.a. and is in reference to the CCC being taxed at 30%, rather than 15%. From 01/07/2017 the proposal is for the tax to apply to clients who have income above $250K p.a.
Transition to Retirement (TTR) Pensions: Removal of Earnings Tax Exemption
At present, clients who are in a TTR benefit from a 0% tax environment on their earnings. This proposal from 01/07/2017 is that these earnings will now be taxed at 15% which is the same rate while clients are in accumulation phase.
Extend Deductions for Personal Contributions
From 01/07/2017 the proposal will allow any client under age 75 to make personal CCC to superannuation. At present, only clients who are self-employed are able to make personal deductible contributions.
There are also some spouse superannuation tax offset and low income super tax offset changes proposed for 01/07/2017 along with anti-detriment changes and defined benefit scheme changes. Importantly, as mentioned these changes are not legislation yet but if you have any questions or would like to discuss further don’t hesitate to contact us.
Reference: Firsttech Federal Budget Briefing 4 May 2016