Legislation to introduce the superannuation reforms announced during the 2016 Federal Budget has been passed and now just needs Royal Ascent. We see this as mere formality and just a rubber stamp exercise with all reforms expected to be in place in the near future. Each of the below will take effect from 1 July 2017 except for the catchup concessional contribution limits that will take effect on 1 July 2018.
A summary of the reforms is provided below:
The current $30,000/$35,000 concessional contributions cap will reduce to $25,000 pa regardless of age. This also effects any contributions to defined benefit schemes and constitutionally protected funds (CPFs).
Personal Deductible Superannuation Contributions
All individuals under the age of 75 will be able to claim a tax deduction for personal super contributions up to the new $25k limit.
Important to note however is that for individuals that are over age 65 the 40 hour work test (over a 30 day period) must be met prior to making any personal deductible contributions. This provides a good opportunity for individuals to make additional contributions to super for tax purposes without worrying about work status.
High Income Earners Super Tax
The high income earners ‘super tax’ income threshold will reduce from $300,000 pa, to $250,000 pa
Non-Concessional Contribution Limits
A cap of $100,000 pa per person will apply. If the individual is under age 65 the 3 year bring-forward rule can be utilised, thus contributing up to $300,000 in one year
For the financial year ending 30 June 2017 the current limit of $180,000 per annum, or $540,000 3-year limit, can still be used. In order to access the full $540,000 limit however, the individual must fully utilise this amount this financial year otherwise transitional bring forward rules will apply. If an individual has not fully used their bring-forward limit before 1 July 2017, the remaining bring forward amount will be reassessed to reflect the new annual caps.
If the individual’s super balance is $1.6 million or greater then no further non-concessional contributions can be made. This restriction only applies to non-concessional contributions.
Catch-up Concessional Contributions
A ‘catch up’ concessional contributions measure will be available to allow unused concessional contribution caps to be carried forward on a rolling basis for up to 5 consecutive years where an individual’s account balance is $500,000 or less.
Transition to Retirement (TTR) Pensions
The tax exempt status of earnings supporting a TTR pension will be removed. Earnings within the TTR pension will be taxed at 15%. We recommend those with TTR pensions seek advice to clarify their own position.
Individuals will also no longer be allowed to treat certain income stream payments as lump sums for tax purposes.
Pension Transfer Balance Cap
A $1.6 million transfer balance cap on the total amount of super an individual can transfer into Allocated Pensions will apply. The cap will apply to current retirees and individuals yet to enter retirement.
Individuals in Pension Phase with balances above $1.6m will be required to reduce their balance to the cap by 1 July 2017 by transferring any excess back to accumulation or withdrawing the excess from super. If not transferred, excess tax will be apply at 15% initially and 30% for subsequent breaches of the cap.
We recommend that individuals with Pensions should seek advice regarding any impacts to their position. The cap will index in increments of $100,000 in line with CPI. The cap will also impact how superannuation death benefits can be paid as an income stream to certain beneficiaries.
Low Income Super Tax Offset – refund of contributions tax where a person earns less than $37,000pa.
Low Income Spouse Tax Offset – increasing the spouse income threshold to $37,000.
Anti-detriment payments from superannuation death benefits abolished.
Contact your adviser if you would like to know how the new Legislation may affect you.