This year’s budget sees some major changes for superannuation. Careful analysis on how this may impact your retirement plans is advised. Below is a snapshot of the changes:
Catch-Up Super Payments
Workers can make concessional catch-up payments into super in following years if their super balance is below $500,000 providing they have not reached their concessional contributions cap in previous years. Only unused amounts accrued from 1 July 2017 can be carried forward, and can only be carried forward on a rolling basis for a period of five consecutive years.
This is a good strategy for those whose cashflow gives them the ability to contribute to top-up their super and lower their tax burden.
Spouse Tax Offset
The Spouse Tax Offset will be extended to allow more families to support each other in accumulating super, with the income threshold for the receiving spouse lifted from $10,800 to $37,000, the offset is gradually reduced for income above this level, and completely phases out at income above $40,000. The contributing spouse also receives up to $540 per annum.
Tax Deduction for Personal Super Contributions
New tax deductions will also apply to all individuals aged under 75 years who make personal super contributions. Those who benefit most from this arrangement are individuals who may be partially self-employed, partially wage and salary earners or individuals whose employers do not offer salary sacrifice arrangements for super contributions.
High End Super Cap
High end superannuation earners are heavily impacted with a new $1.6 million cap on the amount of super which can be transferred tax-free into retirement pensions. Fund Members already in pension phase with balances above $1.6 million will be required to reduce this balance to $1.6 million by 1 July 2017.
Concessional Super Cap for All
A new annual concessional contribution cap cut to just $25,000 from the current levels of $30,000 (for individuals aged under 50) and $35,000 (for individuals aged 50 and over), applies to all income earners from 1 July 2016. PJT recommends taking advantage now to contribute additional super in the current financial year if you are able to.
Lifetime Non-Concessional Super Cap
A new lifetime cap of $500,000 for all non-concessional contributions now applies. The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, and will be indexed in $50,000 increments in line with average weekly ordinary times earnings. If an individual has exceeded the cap prior to the commencement date of 3 May 2016, they will be taken to have used up their lifetime cap, but they will not be required to take the excess out of their superannuation fund. If an individual makes non concessional contributions after 3 May 2016 which causes them to exceed the cap, they will be made to withdraw the excess from their fund by the ATO, and individuals choosing not to withdraw the excess will be penalised.
The lifetime non-concessional contributions cap will replace the existing scheme which allows non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals under 65). This has the ability to impact any current ability to withdraw and reinvest in super or perhaps move your property to super.
High Income Earners Hit
The 30% tax on concessional super contributions has been lowered to those earning over $250,000 (down from $300,000).
Transition to Retirement Changes
Transition to Retirement is also changing, from 1 July 2017 the tax exemption on earnings through TRIS (transition to retirement income streams) will impact those over preservation age but not yet retired. Earnings from assets supporting a TRIS will now be taxed at 15%, and this change is proposed to apply irrespective of when the TRIS commenced. Anyone with a TRIS could be impacted by this, and it may be advantageous to unwind the TRIS depending on your individual circumstances.
Contribution Rules Change for Ages 65-74 – Work Test no longer applies
There are also changes to the contribution rules for those aged 65 to 74, from 1 July 2017 the Government will remove the current restrictions on people in this age group from making super contributions for their retirement. The “work test” will no longer apply, which is a bonus for individuals wanting to boost their super in this age bracket.
Removal of Anti-Detriment Provision
From 1 July 2017 the Government will remove the anti-detriment (deduction) provision, which allows the spouse or children of a deceased fund member to obtain a refund of all contributions tax paid by the deceased member during their lifetime.
Lump Sum Rules Removed
The Government will also remove the rule which allows individuals to treat certain superannuation pension payments as lump-sums for tax purposes (currently tax free up to the low rate cap of $195,000).
Low Income Earners
A Low income superannuation tax offset (LISTO) will be introduced from 1 July 2017 to reduce the tax on super contributions for low income earners. A non-refundable tax offset based on the tax paid on concessional contributions made on behalf of low income earners is available, up to a cap of $500. This applies to members with adjusted taxable income of up to $37,000 who have had a concessional contribution made on their behalf.
If you are impacted by any of the changes outlined above and wish to discuss your circumstances please contact your trusted PJT super specialist.
GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.
PJT Accountants & Business Advisors Pty Ltd CAR Number 1243046 ABN 75 116 182 873 is a Corporate Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361
Jodie Thompson ARN 277884, Wayne Patten ARN 277883, Matthew Dunn ARN 1243039 are Limited Authorised Representatives of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361