The Government will enshrine in law that the objective for superannuation is “to provide income in retirement to substitute or supplement the Age Pension.” The following is the harshest Budget in regards to Super handed down.
Contributions caps – LOSS
The concessional contributions (CC) cap will be reduced to $25,000 from 1 July 2017, and a lifetime non-concessional contributions (NCC) cap of $500,000 will apply from 7.30pm on 3 May 2016 for all individuals under age 75.
| Concessional cap | Current | Proposed |
|---|---|---|
| Under age 49 | $30,000 pa | $25,000 pa from 1 July 2017 |
| Age 49 or over | $35,000 pa | $25,000 pa from 1 July 2017 |
| Non-concessional cap | ||
| Under age 65 at 1 July | $180,000 pa or $540,000 over 3 years | $500,000 lifetime cap from 7.30pm on 3 May 2016 |
| Age 65 or over at 1 July | $180,000 pa | $500,000 lifetime cap from 7.30pm on 3 May 2016 |
NCCs already contributed on or after 1 July 2007 count towards the $500,000 lifetime NCC cap, however NCCs over the lifetime cap (before commencement) will not result in an excess. NCCs in excess of the $500k cap after commencement can be refunded and if not refunded will incur penalty tax.
Catch-up concessional contributions – SMALL WIN
Individuals with super balances under $500,000 will be able to bring forward previously unused concessional cap amounts from 1 July 2017. For example, if an individual contributes $20,000 in the 2016/17 financial year, they will be able to make an additional $5,000 CC on top of the $25,000 CC cap in 2017/18.
The unused amounts can be carried forward on a rolling basis for a period of five consecutive years. It must be emphasised, this will only apply to amounts accrued from 1 July 2017.
Tax deduction for super contributions extended – WIN
Individuals up to age 75 will be able to claim a tax deduction for their personal superannuation contributions up to the CC cap from 1 July 2017, regardless of their employment circumstances.
Super contributions – high income earners – LOSS
Individuals with adjusted taxable income (ATI) of $300,000 currently pay an additional 15 per cent tax (total of 30 per cent) on concessional super contributions.
The income threshold will be reduced to $250,000 from 1 July 2017.
How this works in practice:
• If ATI is $240,000 and concessional contributions (CCs) of $25,000 are made; 30 per cent contributions tax will apply on $15,000 of CCs and 15 per cent will apply on the remaining $10,000 CCs.
• If ATI is over $250,000 without CCs, all CCs will be taxed at 30 per cent.
The $250k threshold will also apply to members of defined benefit schemes and constitutionally protected funds currently covered by the additional tax. Existing exemptions (such as State higher level office holders and Commonwealth judges) will be maintained.
Implications
The tax concession on concessional contributions will be effectively diluted to 19 per cent for those with income over $250,000 on a MTR of 49 per cent.
Removal of work test – WIN
The work test (40 hours in 30 consecutive days) will be scrapped for individuals aged between 65 and 74 who wish to make super contributions. Individuals age 65-74 will also be able to receive spouse contributions.
Planning Point – Older individuals will have greater opportunities to boost retirement savings.
Retirement income balance cap of $1.6m – LOSS
A $1.6 million cap will apply on the amount that can be transferred into the superannuation pension phase from 1 July 2017. There will be no restriction on earnings on the cap amount. Amounts in excess of the $1.6 million cap transferred (including earnings on the excess) will attract the same tax treatment as excess non-concessional contributions (excess unrefunded NCCs are currently taxed at 49 per cent).
Accumulated super in excess of $1.6 million will be able to be retained in a member’s accumulation account (with earnings taxed at 15 per cent). Members already in pension phase with balances in excess of the $1.6 million cap will need to roll back the excess to accumulation by 1 July 2017.
Planning Point – Clients will need to review their investment strategy in light of this change.
Transition to retirement – LOSS
The tax exemption on earning on assets supporting transition to retirement income streams will be removed from 1 July 2017. The ability to treat certain superannuation income stream payments as lump sums for tax purposes will also be removed.
Planning Point – Clients to revisit if a TRIS will still be tax effective post 1 July 2017.
Low income superannuation tax offset (LISTO) – NO CHANGE
The LISTO will provide a non-refundable tax offset to superannuation funds, based on concessional contributions tax paid up to a cap of $500, from 1 July 2017. The LISTO will apply to concessional contributions made on behalf of low-income earners with adjusted taxable income up to $37,000.
Low income tax offset spouse threshold – WIN
The income threshold of a low income spouse for the purposes of the spouse contribution tax offset will increase from $10,800 to $37,000, from 1 July 2017.
To be entitled to the maximum tax offset of $540 from 1 July 2017, the eligible spouse contributions must be made on behalf of a spouse whose assessable income, reportable fringe benefits and reportable employer super contributions in a financial year is less than $37,000.
Planning Point – If your spouse is earning under these thresholds you can contribute up to $3000 to their Super account in return for a tax deduction.
Anti-detriment – LOSS
The anti-detriment payment (essentially a refund of contributions tax) will be removed from 1 July 2017.
For information and advice on your wealth management, superannuation or retirement planning, please contact the team at Oncore Wealth Solutions on 1300 654 484 or email wealth@oncoreservices.com