It has been a fortnight since the 2016 Federal Budget was delivered by the Turnbull government, and unlike previous years, there were numerous proposed changes to superannuation that caught the attention of accountants in Sydney.
With such significant superannuation reforms in an election year, there is a lot of water to go under the bridge until they become law. However, this means more significant planning will be required in the interim.
Summary of the Coalition’s Budget Announcements and ALP Comparison (Where Known)
- Introduction of a $500,000 Lifetime Cap on Non-Concessional Contributions retrospectively applied from 1 July 2007.
- From 7.30 pm on 3 May 2016, individuals will be limited to this lifetime cap which will replace the current non-concessional cap of $180,000 pa (or $540,000, if the 2-year bring forward rule has been triggered). It does not seem that they propose to require individuals to remove excess contributions above this, where they have already exceeded this limit before budget night. If you have already exceeded the limit previously, you can not contribute any more.
- ALP opposes retrospective changes to the contribution caps.
Changes from 1 July 2017
- Introduction of a $1.6m maximum transfer to the pension account
- There will be a “transfer balance cap” of $1.6m as of 1 July 2017. This means all individuals will have a maximum amount of benefits which can be held in a pension account and receive concessional tax treatment. Any excess amount could be maintained in an accumulation account (where earnings are taxed at 15%).
- ALP counter-proposal: introduction of Tax on Pension Earnings in Excess of $75,000 where investment income on assets supporting a pension will be tax-free up to $75,000 pa for each member, and the excess earnings taxed at 15%.
- Introduction of Catch-up Concessional Contributions
- Individuals with superannuation balances of less than $500,000 will be allowed to make catch-up contributions up to their unused concessional cap of prior years, with any unused cap to be accrued from 1 July 2017 and carried forward on a rolling basis for a period of 5 consecutive years, calculated using the new $25,000 concessional contribution cap.
- Reduction of Concessional Contributions Cap
- The concessional cap will be reduced to $25,000 regardless of an individual’s age which will replace the existing caps of $30,000 / $35,000 depending on if you are aged 48 or under or 49 and over on 30 June 2015.
- ALP is in support of these changes.
- Reduction of the Division 293 Tax Threshold for high-income earners
- The threshold will be lowered to $250,000 (from the current $300,000), at which high-income earners pay additional contributions tax on their concessional contributions.
- Restrictions on Accessing Transition to Retirement (TTR) Pensions
- The earnings on assets supporting a TTR will no longer be tax-free and will be taxed at 15%, regardless of the TTR start date.
- Removal of the Work Test for individuals aged 65 to 74 who wish to voluntarily contribute to superannuation from 1 July 2017, making it easier to contribute even if not working.
- Removal of 10% test for Personal Concessional Contributions
- Individuals under 75 may claim a personal tax deduction for their concessional contributions up to the cap, regardless of their employment circumstances.
- Introduction of a Low Income Superannuation Tax Offset
- A non-refundable tax offset of up to $500 for superannuation funds will be available for low-income earners receiving concessional contributions with an adjusted taxable income of less than $37,000.
All the above 1 July 2017 reforms are only proposed changes at this stage and will be subject to which government is elected and legislative approval.
If you have any queries on the above budget summaries or any other superannuation, please do not hesitate to contact our office.
Kreston Stanley Williamson Team
*Correct as of May 2016
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