There are several changes to Super announced in the 2016/2017 Federal Budget. As of 1st July 2017, the following amendments will be implemented:
From 1 July 2017, all individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions. In doing so, all individuals will, regardless of their employment circumstances, be able to make superannuation contributions up to the concessional cap. These amounts will count towards the concessional contributions cap and will be subject to contributions tax.
Similar to the current arrangements to claim the tax deduction, individuals will need to lodge a notice of their intention to claim the deduction before they lodge their income tax return for the relevant year.
Certain untaxed and defined benefit superannuation funds will be prescribed, meaning members will not be eligible to claim a deduction for contributions to these funds. However, they may choose to make their contribution to another eligible superannuation fund.
From 1 July 2018, individuals with superannuation balances of $500,000 or less will be able to accrue unused concessional contribution cap amounts.
Unused amounts can be carried forward on a rolling basis for a period of five years. Amounts carried forward that have not been used after five years will expire.
Carrying forward unused concessional contributions cap will make it easier for individuals with varying capacity to make contributions to superannuation.
From 1 July 2017, the ‘Division 293’ threshold will reduce from $300,000 to $250,000 per year meaning individuals earning over this amount will have to pay an additional 15% tax on concessional contributions above the cap.
The existing administration process for levying this tax will remain unchanged, but a larger number of people will be drawn into it. Individuals will still have the ability to pay the additional 15% tax liability from their superannuation fund if they choose to.
Similar measures will apply to high earning members of defined benefit funds.
Under recently enacted legislation, the annual non-concessional contributions (NCC) cap was reduced from $180,000 to $100,000 as from 1 July 2017.
This means that the NCC cap that applies over three years under the “bring forward” rule is reduced from $540,000 to $300,000 (i.e., three times $100,000).
If the NCCs made in the 2015/16 and/or the 2016/17 income years totaled at least $540,000, then the NCC cap is $540,000.
However, if the NCCs made in each of the 2015/16 and the 2016/17 income years did not exceed $180,000, then the three year bring forward NCC cap for the 2017/18 and later income years is just $300,000.
Transitional rules apply if the total NCCs made in the 2015/16 and 2016/17 income years exceeded $180,000 but were less than $540,000. For more information, see the table below:
Important: From 1 July 2017, if you have more than $1.6 million in Super (total superannuation balance), you cannot make NCCs into Super.
From 1 July 2017, the 18% tax offset of up to $540 will be available for any individual contributing to a recipient spouse’s superannuation whose income is up to $37,000.
In the past, the 18% tax offset of up to $540 is available for any individual contributing to a recipient spouse whose income was up to $10,800.
The tax offset will be calculated as 18% of the lesser of:
$3,000 reduced by every dollar over $37,000 or
the amount of spouse contributions.
The LISTO applies to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.
From 1 July 2017, superannuation funds have no longer been able to make anti-detriment payments. This was a very limited area of use for SMSF’s.
The anti-detriment provision allowed superannuation funds to refund a lump sum to a member’s estate on death, in compensation for the 15% contributions tax deducted from contributions over that member’s working life. This ‘anti detriment payment’ was paid as a top-up to the member’s superannuation death benefit, applying only when eligible dependents existed.
The Government removed barriers to innovation in retirement income stream products by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self annuitization products.
This change enhanced both choice and flexibility for Australian retirees and helps provide clients with retirement income throughout their lives, regardless of how long they live.
These products will help Australians better manage consumption and risk in retirement, including longevity risk.
In conjunction with the Federal Budget, the Government also released the final report of the review of retirement income stream regulation.
The Report recommends that the annual minimum drawdown requirements were consistent with the objective of the superannuation system to provide income in retirement.
However, the Australian Government Actuary should review the annual minimum drawdown rates every five years to ensure they remain appropriate in light of increasing life expectancies.
Any other changes to the minimum drawdown rates should only be considered in the event of significant economic shocks.
The Report also recommended that an additional set of income stream rules should be developed which would allow lifetime products to qualify for the earnings tax exemption provided they meet a declining capital access schedule.
From 1 July 2017, the tax exempt status of income from assets supporting transition to retirement (TTR) pensions was removed.
Transition to retirement pensions allows individuals to access their superannuation whilst still working between preservation age (currently 56) and age 65. Under the new rules, people can continue existing TTR pensions and start new ones; however, the earnings on these assets will be taxed at 15% in line with accumulation assets.
The ATO has recently clarified that a member can elect to make a lump sum payment from a TTR pension and it will be treated as such for tax purposes, allowing tax-free withdrawals for the under 60s up to the low rate cap (currently $195,000). The Government will also move to close this loophole.
From 1 July 2017, a $1.6 million cap on the total amount of superannuation that can be used to commence a pension was introduced. New rules will limit the amount that individuals can transfer into a tax-free retirement account.
For those entering retirement after 1 July 2017, any superannuation in excess of the cap can remain in accumulation, where earnings are taxed at 15%. Subsequent earnings on these balances will not be restricted. A proportionate method which crystallizes a percentage of the cap each time a pension is commenced will be used to keep track of unutilized caps.
For those with existing pensions on 1 July 2017, amounts in excess of the cap on this date will need to be rolled back into an accumulation account or withdrawn.
Punitive taxes will be applied to pension commencements in excess of the cap including the earnings on the excess. The $1.6 million cap will increase in $100,000 increments in line with the Consumer Price Index (CPI). Similar measures will be applied to defined pension schemes by changing the tax treatment of pension amounts over $100,000. The Government will undertake a consultation on the implementation of these changes for both accumulation and defined benefit funds.