Summary of the Federal Governments New Superannuation Reforms

March 12, 2017  by Oggy Georgiev - Business Services Manager

TRANSFER BALANCE CAP

ATO factsheet is available on this topic.

 What is it?

  • From 1 July 2017, there will be a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax–free retirement phase. Subsequent earnings on balances in the retirement phase will not be capped or restricted.
  • Savings beyond this can remain in an accumulation account (where earnings are taxed at 15 per cent) or outside the superannuation system.
  • Transitional arrangements will apply. People already retired with balances below $1.7 million on 30 June 2017 will have 6 months from 1 July 2017 to bring their retirement phase balances under $1.6 million.
  • The transfer balance cap will be indexed and will grow in line with CPI, meaning the cap will be around $1.7 million in 2020–21.

How does it work?

  • Agnes, 62, retires on 1 November 2017. Her accumulated superannuation balance is $2 million. Agnes can transfer $1.6 million into a retirement phase account. The remaining $400,000 can remain in an accumulation account where earnings will be taxed at 15 per cent.
  • Alternatively, Agnes may choose to remove all or part of the extra $400,000 from superannuation.
  • Subsequent earnings on balances in the retirement phase will not be capped or restricted. The minimum drawdown will apply.

TAXATION OF CONCESSIONAL SUPERANNUATION CONTRIBUTIONS

ATO factsheet is available on this topic.

What is it?

  • From 1 July 2017, the threshold at which high income earners pay additional contributions tax (Division 293) will be lowered from $300,000 to $250,000.
  • The Government will also reduce the annual cap on concessional (before–tax) superannuation contributions to $25,000 (currently $30,000 for those aged under 49 at the end of the previous financial year and $35,000 otherwise).

How does it work?

  • In 2017–18, Madeline earns $260,000 in salary and wages. In the same year she has concessional superannuation contributions of $30,000. Madeline’s fund will pay 15 per cent tax on these contributions. Madeline will pay an additional 15 per cent tax on $25,000 of the concessional contributions, resulting in these amounts effectively being taxed at 30 per cent.
  • The $5,000 of contributions in excess of the cap will be treated as income taxed at her marginal rate. Madeline pays $1,600 income tax on her excess contribution. Madeline can choose to leave this excess in her superannuation (as a non–concessional contribution) or remove it from super.

LOWERING THE ANNUAL NON–CONCESSIONAL CONTRIBUTIONS CAP

ATO factsheet is available on this topic.

What is it?

  • From 1 July 2017, the Government will lower the annual non–concessional contributions cap to $100,000 and will introduce a new constraint such that individuals with a balance of $1.6 million or more will no longer be eligible to make non–concessional contributions. As is currently the case, individuals under age 65 will be eligible to bring forward up to 3 years of non–concessional contributions.
  • This is in place of the $500,000 lifetime non–concessional contributions cap announced in the 2016–17 Budget.

How does it work?

  • The $1.6 million eligibility threshold will be based on an individual’s balance as at 30 June the previous year. This means if the individual’s balance at the start of the financial year (the contribution year) is $1.6 million or more they will not be able to make any further non–concessional contributions. Individuals with balances close to $1.6 million will only be able to access the number of years of bring forward to take their balance up to $1.6 million.
  • Transitional arrangements will apply. If an individual has not fully used their non–concessional bring forward before 1 July 2017, the remaining bring forward amount will be reassessed on 1 July 2017 to reflect the new annual caps.
  • Individuals aged between 65 and 74 will be eligible to make annual non–concessional contributions of $100,000 if they meet the work test (that is they work 40 hours within a 30 day period each income year). As per current arrangements, they will not be able to access the three year bring forward of contributions.

LOW INCOME SUPERANNUATION TAX OFFSET (LISTO)

ATO factsheet is available on this topic.

What is it?

  • From 1 July 2017, the Government will replace the Low Income Superannuation Contribution (LISC) with the Low Income Superannuation Tax Offset (LISTO).

How does it work?

  • The LISTO effectively refunds the tax paid on concessional contributions by individuals with a taxable income of up to $37,000 – up to a cap of $500.
  • This avoids the situation where low income earners pay more tax on contributions to superannuation than on their take home pay. 
  • The amount of the LISTO that an individual is eligible for will be paid into the individual’s superannuation account.

IMPROVING ACCESS TO CONCESSIONAL CONTRIBUTIONS

ATO factsheet is available on this topic.

What is it?

  • From 1 July 2017, the Government will allow all individuals under the age of 65, and those aged 65 to 74 who meet the work test, to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.

How does it work?

  • Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10 per cent of their income from salary or wages. This limits the ability for people in certain work arrangements to benefit from concessional contributions to their superannuation. Under the new arrangements, more individuals will be able to make concessional personal contributions up to the annual cap.
  • Chris has started his own online merchandise business but continue to work part-time at an accounting firm earning $10,000 as his business is growing. His business earns $80,000 in his first year and he would like to contribute $15,000 of his $90,000 income to his superannuation. He currently could not claim a tax deduction for any personal contributions. Under the changes, Chris could claim a tax deduction for his $15,000 of superannuation contributions.

ALLOWING CATCH–UP CONCESSIONAL CONTRIBUTIONS

ATO factsheet is available on this topic.

What is it?

  • From 1 July 2018, the Government will help people ‘catch–up’ their superannuation contributions by allowing individuals with a total superannuation balance of less than $500,000 just before the beginning of a financial year to carry forward unused concessional cap space (for up to 5 years) to use if they have the capacity and choose to do so.

How does it work?

  • Cassandra has a superannuation balance of $200,000 but did not make any concessional superannuation contributions in 2018–19 as she took time off work to care for her child. In 2019–20 she has the ability to contribute $50,000 in concessional (before-tax) contributions into superannuation ($25,000 under the annual concessional cap and $25,000 from her unused 2018–19 concessional cap which she can carry forward).

EXTENDING THE SPOUSE TAX OFFSET

ATO factsheet is available on this topic.

What is it?

  • The Government will make the current spouse tax offset available to more couples so they can support each other in saving for retirement.

How does it work?

  • Currently, a tax offset of up to $540 is available for individuals who make superannuation contributions to their spouses with incomes up to $10,800. The Government will allow more people to access the offset by extending eligibility to those whose recipient spouses earn up to $40,000.
  • There are no changes to the current aged based contribution rules. The spouse receiving the contribution must be under age 70 and meet a work test if they are aged 65 to 69.

ABOLISHING THE ANTI–DETRIMENT RULE

What is it?

  • From 1 July 2017, the Government will remove the anti-detriment provision which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants. This provision is outdated and inconsistent with other parts of the tax law.

How does it work?

  • An anti-detriment payment is an amount that can be included when a lump sum death benefit is paid to a dependant. The payment represents a refund of the 15 per cent tax on contributions that has been paid by the deceased member over their lifetime.
  • Superannuation funds will no longer be able to claim a tax deduction for anti–detriment payments made to eligible dependants.

Source: ATO Ref Num: {89BA2EBF-C423-4B14-8CE3-876C2D88EDCC}; Institute of Chartered Accountants Tax Vine 10 Mar 2017.

 

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