Many of the government’s super changes, first announced in the Federal Budget on 3 May 2016, are now law. Some of the proposals have been altered since first being put forward by the government.
The changes which will take effect from 1 July 2017 include:
- A new cap on lifetime transfers to retirement income streams of $1.6 million
- A lower cap of $25,000 per annum for concessional contributions
- A lower cap of $100,000 per annum for non-concessional contributions
- Tax deductions for personal contributions to super
- Increased tax on concessional contributions for higher-income earners
- Retention of the Low Income Superannuation Contribution (LISC) – renamed the Low Income Superannuation Taxation Offset (LISTO)
- Increased thresholds for spouse contributions tax offsets from $10,800 to $37,000
- Removing the tax exemption on earnings on the assets supporting a Transition to Retirement Income Stream (TRIS)
- From 1 July 2018, members with super balances of $500,000 or less can take advantage of unused concessional contribution cap amounts from previous years. Unused amounts can be accrued for up to five years beginning from 1 July, 2018
- The $80,000 income tax bracket increased to $87,000 for the 2016-17 financial year.
Introducing a transfer balance cap of $1.6 millionShow more
From 1 July 2017, there will be a $1.6 million cap on the total amount of super that can be transferred into a tax-free retirement account. If you breach the cap, you will be subject to a tax on the notional amount of the earnings on the excess.
The cap will be indexed in $100,000 increments in line with the Consumer Price Index.
A proportionate method, which measures the percentage of the cap previously used, will determine how much remaining cap you have available at any point in time. For example, if you have previously used up 75% of your cap, you will have access to 25% of the current (indexed) cap. Fluctuations in retirement accounts due to earnings or pension payments are not considered when calculating the unused cap.
If you are a member of a defined benefit fund and receive a pension, the government has legislated changes that mean your pension will be measured against the transfer balance cap.
Who will be affected?
If your tax-free retirement account balance across all superannuation funds is over $1.6 million at 30 June 2017, you will need to either:
- transfer the excess back into an accumulation superannuation account
- withdraw the excess amount from your retirement account.
Changes to concessional (before-tax) contributionsShow more
From 1 July 2017, the cap on concessional (before-tax) contributions will be reduced to $25,000 per annum regardless of your age. This applies to both SG and salary sacrifice contributions, which means the total of these two types of contributions will count towards the cap.
What is the change and who will be affected?
The people most affected will be those over the age of 50 who are making additional concessional contributions to their super or those who have higher incomes.
The annual concessional contributions caps are currently $30,000 per annum for people under the age of 50, and $35,000 per annum for people aged 50 or over during the year.
Catch-up concessional contributions
From 1 July 2018, provisions have been introduced to allow a five year carry forward of unused concessional contributions. You will be able to make additional concessional contributions if you have both:
- you have a balance of less than $500,000 before the start of the financial year
- you have unused concessional cap amounts.
Your unused annual concessional contribution cap amounts only accrue from 1 July 2018.
Reduced annual non-concessional (after-tax) contributions capShow more
From 1 July 2017, the cap on non-concessional contributions will be lowered to $100,000 per year. Only people with a total superannuation balance of less than the transfer cap (initially $1.6 million) will be eligible to make non-concessional contributions. The existing arrangement allowing you to ‘bring-forward’ three years’ worth of the cap if you are under 65 remains. However, to prevent individuals from going over the transfer cap threshold, the number of years you can bring forward is restricted once your total superannuation balance is above $1.4 million.
Transitional rules apply to those who have triggered the bring-forward option on or before
30 June 2017.
Currently, you can make non-concessional contributions of $180,000 a year (or $540,000 every three years if you are under 65).
Tax deductions for personal contributions regardless of your work situationShow more
From 1 July 2017, if you are under 65 you will be able to claim a tax deduction for personal contributions regardless of your work situation – up to the new concessional contribution cap of $25,000. If you are aged between 65 and 74 you will be able to take advantage of these new arrangements if you meet the work test.
If you are a member of a defined benefit scheme, you will not be eligible to claim an income tax deduction for contributions to these funds. However, you may claim a deduction if you make a contribution to another non-defined benefit fund.
Additional contributions tax on higher-income earnersShow more
Currently, people with an annual income of over $300,000 pay an additional 15% tax on the amount of concessional contributions that push the income above the $300,000 threshold. This tax is known as Division 293 tax and is calculated by the ATO when your tax return is completed. From 1 July 2017, this threshold will reduce to $250,000.
For example, if you have an adjusted taxable income of $230,000 and you have concessional contributions of $25,000 (so combined income and super is $255,000), you will pay an additional 15% tax on contributions of $5,000 – the amount of the contribution above $250,000.
Government contributions for low-income earnersShow more
The Low Income Superannuation Tax Offset (LISTO) will provide a super boost of up to $500 annually if your adjusted taxable income is less than $37,000 a year. This payment is effectively a refund of the 15% tax you have paid on your super contributions.
The Australian Tax Office will assess whether you are eligible for the LISTO based on your adjusted taxable income, and they will let your super fund know whether you will receive the payment each year.
Transition to retirement income streamsShow more
From 1 July 2017, if you are in a transition to retirement income stream (TRIS), earnings on the assets supporting the TRIS will generally be taxed at 15%, regardless of when you started the account.
There’s a lot to consider and how you’re affected by this change will depend on several factors, including your age. Our case studies take a look at some of the possible outcomes after 1 July 2017.
Tax offsets for spouse contributionsShow more
From 1 July 2017, if your partner earns under $37,000 p.a. and you make a contribution to their super of at least $3,000, you may be eligible for a maximum tax offset of up to $540 ($3,000 x 18%). The offset reduces as your partner’s income increases above $37,000 p.a. and completely phases out at $40,000 p.a.
Currently, the maximum offset of $540 ($3,000 x 18%) is payable if your partner’s annual income is $10,800 or under and you make a super contribution of $3,000, or more. It phases out when your partner’s income reaches $13,800.
Your partner can be either married or de facto.
Income tax bracket changeShow more
Any information or advice it contains is general and does not take into account your specific objectives, financial situation or needs. FSS Trustee Corporation ABN 11 118 202 672, AFSL 293340, the trustee of the First State Superannuation Scheme ABN 53 226 460 365.
Financial planning advice is provided by First State Super Financial Services Pty Ltd ABN 37 096 452 318, AFSL 240019.