Following the new budget effective from 7.30pm 3rd May 2016, following changes have been made in relation to Superannuation;
1. New lifetime cap for non-concessional superannuation contributions – Effective 3rd May 2016 7.30PM
The government will introduce a $500,000 lifetime non-concessional contributions cap.
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 time earnings.
If an individual has exceeded the cap prior to 7.30pm on 3rd May 2016, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the super. However, if an individual has exceeded the cap after 7.30pm on 3rd May 2016, they will be notified by the ATO and must withdraw excess or will be subject to penalty tax.
Please note that the new lifetime cap will replace the existing non-concessional contributions cap, which allow non-concessional contributions of up to $180,000 per year.
2. Allow Catch-up concessional superannuation contributions – Effective from 1st July 2017
From 1st of July 2017, individuals with a super balance of less than $500,000 will be able to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.
Only unused amounts accrued from 1st July 2017 can be carried forward and can only be carried forward on a rolling basis for a period of five consecutive years.
3. Transition to Retirement Income Stream – Removal of tax exemption – Effective from 1st July 2017
From 1 July 2017, tax exemption on earnings of Transition to Retirement Income Stream assets will be removed. The earnings on TRIS asset will be taxed at 15%. This change is proposed to apply irrespective of when the TRIS commenced and therefore the new rule will apply to all existing TRIS.
4. $1.6 Million Pension Cap – Effective from 1st July 2017.
From 1st of July 2017, $1.6 million “superannuation transfer balance cap” will be introduced. Subsequent earnings on this pension balance will not be restricted.
The cap will index in $100,000 increments in line with the consumer price index and a proportionate method will apply to determine the percentage of the cap space an individual has available at any point in time (e.g if an individual has previously used up 75% of their cap they will have access to 25% of the current(indexed) cap.
Please note that, subsequent fluctuations in the pension balance due to earnings growth or pension payments are not considered when calculating cap space.
If an individual has more than $1.6 million in a pension, they can transfer the excess to accumulation phase where earnings are taxed at 15%.
An individual already in pension phase with balances over $1.6 million will be required to reduce the balance by 1st July 2017.
5. Reduced Concessional Contributions Cap – Effective 1st July 2017
From 1 July 2017, annual concessional contributions cap will be reduced to $25,000.
6. Removal of “Work Test” for members aged 65 to 74 – Effective 1st July 2017
Current requirement of members aged 65 to 74 having to satisfy “Work Test” to be able to make super contributions will be removed.
7. Tax Deductions for Personal Super Contributions – Effective 1st July 2017
The government will allow all individuals under age 75 to claim an income tax deduction for personal superannuation contributions. The current requirement to satisfy 10% income test will be removed.
Please note that the Concessional Contribution Cap from 1st of July 2017 will be $25,000. This means if an individual’s employer has contributed $10,000, the employee is able to make further $15,000 into super and claim it as deduction in their personal return.
However, individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes (prescribed funds include all untaxed funds, all Commonwealth defined benefit schemes, and certain defined benefit schemes that choose to be prescribed.)
8. Division 293 Changes – Effective 1st July 2017
Division 293 threshold has been reduced from $300,000 to $250,000.
9. Removal of the anti-detriment provision in respect of death benefits – Effective 1st July 2017
Anti-Detriment provision will be removed from 1st July 2017.
10. Removal of election to treat pension payments as lump-sum payments. – Effective 1st July 2017
The government will remove the rule that allows individuals to treat certain superannuation pension payments as lump-sums for tax purposes (which currently makes them tax-free up to the low rate cap of $195,000).
Disclaimer: This information should not be considered personal financial advice as it is intended to provide general advice only. This factsheet has been prepared by Superhelp Australia Pty Ltd without taking into account your personal objectives, financial situations or needs.
The information contained in the factsheet may not be appropriate to your individual needs therefore you should seek personal financial advice before making any financial or investment decisions.