Changes to Super are coming in to effect from July 2017.
For anyone who wants a comfortable retirement, 1 July 2017 is a very important date, as radical and substantial superannuation changes will take effect from then.
Although it seems like super is constantly under attack, it is still the most effective way to provide for retirement. It remains a tax-free retirement phase option, and the only legal way to ensure you pay no tax on larger retirement balances.
In fact, super is so good that the government is looking to reduce how much we can use it.
Some of the rule changes around super contributions and the tax breaks available means the door will be closing on some very generous concessions.
See what the changes could mean for you and what opportunities you could take advantage of before the end of the financial year.
Introduction of a transfer balance cap
A $1.6 million cap has been introduced on the amount that can be transferred to super in retirement phase, where the earnings are tax-free. Additional savings can remain in an accumulation account (where earnings are taxed at 15 per cent) or remain outside super. This comes into effect from 1 July 2017 and will be indexed in following years. Retired people with retirement balances below $1.7 million on 30 June 2017 will have 6 months from 1 July 2017 to bring their balances under $1.6 million.
Concessional (before tax) superannuation contributions cap reduced
The annual concessional contributions cap has been reduced to $25,000 (from $30,000 for those aged under 49 at the end of the previous financial year and $35,000 otherwise).
Concessional superannuation contributions tax threshold reduced
The threshold at which high-income earners pay an extra 15% tax on their concessionally taxed contributions to superannuation has been reduced from $300,000 to $250,000.
Transition to retirement pensions will lose their tax exemption
Investment earnings on super fund assets that support a pension are currently tax free. However, this will no longer apply to transition to retirement (TTR) income streams.
Earnings on fund assets supporting a TTR income stream will be subject to the same maximum 15% tax rate that applies to accumulation funds.
Non-concessional (after Tax) contributions cap reduced and criteria introduced
The annual non-concessional contributions cap has been reduced from $180,000 to $100,000. Those under age 65 can still bring forward three yearsâ€™ worth of after-tax super contributions, with a maximum of $300,000 under the bring-forward rules.
Low Income Superannuation Tax Offset to replace the Low Income Super Contribution
The Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution from 1 July 2017. The LISTO refunds up to $500 of the tax paid on concessional super contributions for low-income earners with a taxable income of up to $37,000.
Greater deductibility of personal contributions
The requirement that an individual must earn less than 10 per cent of their income from employment to be able to deduct a personal contribution to their super to make it a concessional contribution has been removed. This will apply from the 2017-18 income year.
Allowing â€˜catch-upâ€™ concessional contributions
Individuals whose superannuation balance at the end of the previous financial year is less than $500,000 will be able to carry forward unused concessional cap amounts from the previous five years. This applies to working out an individualâ€™s concessional contributions cap from the 2019-20 financial year onwards.
More tax offsets for spouse contributions
This increases the amount of income an individualâ€™s spouse can earn before the individual stops being eligible to a tax offset for contributions made on behalf of their spouse. This will apply from the 2017-18 income year.
Changes to earnings tax exemptions
The earnings tax exemption has been extended to new lifetime products (including deferred products and group-self annuities). The earnings tax exemption for transition to retirement income streams has been removed. An integrity measure that will apply to self-managed super funds and other small funds has been introduced. These changes will apply from the 2017-18 income year.
Abolishing the anti-detriment rule
The anti-detriment provision which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants will be removed from 1 July 2017.
Non-super change: delivery of personal income tax cuts
Along with several other tax measures, on 2016 Federal Budget night, the Government announced the following personal tax measures:
The income threshold before the personal marginal tax rate of 37% applies, has been increased from $80,000 to $87,000 from the 2016/2017 year. This will mean a lower income tax bill from the 2016/2017 year, for those currently earning more than $80,000.
- Increase in income tax threshold before 37% tax rate is applicable.
The Temporary Budget Repair Levy, which added 2% extra tax on high-income earners for 3 years, will no longer apply from 1 July 2017.
- Removal of Temporary Budget Repair Levy by June 2017
Age Pension Changes
An indirect change to the super rules, but highly significant change to the retirement plans of Australians with super savings, is the introduction of a harsher Age Pension assets test since January 2017. Rather than losing $1.50 for every $1,000 over the full Age Pension threshold as the current test applies, instead, since January 2017 a retiree loses $3.00 for every $1,000 of assets over the full Age Pension threshold. The harsher Age Pension assets test means more than 300,000 Australians lost part, or all, of their Age Pension entitlements.
Super opportunities this financial year
- You can contribute $80,000 more in after-tax super contributions than what will be possible from 1 July 2017, as the after-tax contributions cap will be reduced from $180,000 to $100,000 per year.
- If youâ€™re under age 65, you can also bring forward three yearsâ€™ worth of after-tax super contributions up to a maximum of $540,000. This is significantly higher than the $300,000 limit that will apply from 1 July 2017.
- The before-tax contributions limit will remain at $30,000 (or $35,000 if youâ€™re turning 50 years of age or older this financial year) until 1 July 2017. This means you can contribute $5,000 or $10,000 more in before-tax contributions respectively before the limit is reduced to $25,000 per year for everyone.
- Those with a TTR strategy in place should now review it to decide whether it remains a viable strategy from July 2017.
This provides general information and hasnâ€™t taken your circumstances into account. Itâ€™s important to consider your situation before deciding whatâ€™s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
Please feel free to contact us should you have any queries.