In the 2016 Federal Budget, the Turnbull Government decided to focus in on superannuation through their Superannuation Reform Package with the aim of fostering fairness, sustainability, flexibility, and integrity in the retirement savings environment.
Many people stand to benefit from these changes, but some higher income earners will lose out. As most of these changes start from 1 July this year, there’s still a window of opportunity between now and June to take full advantage of the current system.
The new taxation and superannuation bills passed through the House of Representatives and Senate can be broadly characterised into three main groups:
Firstly, measures impacting on higher income earners and those with a capacity to make additional contributions
- Introducing a $1.6 million cap on superannuation transferred to pension phase to limit tax-free investment earnings in pension phase
- Amending the following existing measures,
- Lowering the annual non-concessional contributions cap from $180,000 pa to $100,000 pa. The bring-forward rules will still apply at the reduced rate. However, a new constraint will apply so that individuals with a total superannuation balance of $1.6 million or more, will not be eligible to make non-concessional contributions.
- Adjusting annual concessional contributions cap to a unified $25,000 pa.
- Adjusting the income threshold for the additional 15% tax on concessional contributions for high income earners from $300,000 to $250,000.
Secondly, 'integrity' measures
- Removing the anti-detriment provision in respect of death benefits from superannuation.
- Removing the tax exemption on earnings of assets supporting Transition to Retirement income streams by imposing a 15% tax on asset earnings.
And lastly, measures supporting low income earners and providing more flexible contributions arrangements
- Introducing the Low Income Superannuation Tax Offset as way of continuing the existing Low Income Superannuation Contribution scheme (expiring in June 2017) that compensates people who earn less than $37,000 for the 15% contributions tax.
- Introducing the catch-up provision on concessional contributions whereby individuals with a superannuation balance of less than $500,000 may make use of previously unused concessional contribution amounts (usability capacity commencing in the 2019/20 financial year). This may be useful for people who take career breaks.
- Raising the income threshold for the Low Income Spouse Contributions from $10,800 to $37,000, so there may be extra room in which to top up your spouse’s super.
- Removing the 10% ‘maximum earnings as employee’ test for claiming tax deductions for personal superannuation contributions.
There are really only two measures that were proposed at Budget night, that have been dropped and not included in the new legislation. The $500,000 lifetime non-concessional contributions cap has been dropped and the work test will remain for those aged over 65.
Who Will Be Affected?
With regards to the changes, possibly the main question on your mind is where you, like many other Australians, sit and what you can do between now and 30 June.