Budget 2016: Superannuation

May 2016

The Government has introduced a series of dramatic changes to the concessional tax status of superannuation.  

Superannuation changes introduced in Budget 2016 will change many of the strategies that advisers currently utilise to maximise benefits for clients. 

Lifetime cap on non-concessional contributions

Date of effect: 7.30 pm (AEST) on 3 May 2016. Applies to all non-concessional contributions made on or after 1 July 2007

The Budget has introduced a life-time $500,000 non-concessional contributions cap, which will replace the existing system of annual non-concessional contributions of up to $180,000 per year. 

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence at 7.30 pm (AEST) on 3 May 2016. 

Contributions made before commencement will not result in an excess, however, excess contributions made after commencement will need to be removed or will be subject to penalty tax.  The cap will be indexed to average weekly ordinary time earnings.

Concessional contributions cap reduced

Date of effect: 1 July 2017

The current concessional contributions cap will reduce to $25,000 from 1 July 2017.  

From 1 July 2017, the Government will include estimated and actual employer contributions in the concessional contributions cap for members of unfunded defined benefit schemes and constitutionally protected funds.  

Members of these funds will have opportunities to salary sacrifice commensurate with members of accumulation funds.  

For individuals who were members of a funded defined benefit scheme as at 12 May 2009, the existing grandfathering arrangements will continue.

30% tax on super for high income earners

Date of effect: 1 July 2017

At present, individuals with combined income and superannuation contributions of more than $300,000 pay an additional contributions tax of 15% on concessional contributions.  From 1 July 2017, the income threshold will reduce to $250,000.

Tax free super balances capped at $1.6m

Date of effect: 1 July 2017

A new $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free. 

Transfers in excess of this $1.6 million cap (including earnings on these amounts) will be taxed in a similar way to the tax treatment that applies to excess non-concessional contributions.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%). 

Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017.  Excess balances for these members may be converted to superannuation accumulation phase accounts.

Anti-detriment provisions removed

Date of effect: 1 July 2017

The anti-detriment provision will be removed from 1 July 2017.  The rules can currently allow a refund of a member's lifetime superannuation contributions tax payments into an estate where the beneficiary is a dependant of the member.  The move is estimated to save $350 million over 4 years.

Tax deductions on super contributions expanded

Date of effect: 1 July 2017

All individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions from 1 July 2017.  The measure allows individuals – regardless of their employment circumstances – to make concessional super contributions

This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap – partially self-employed, employees whose employers don't offer salary sacrifice arrangements, etc.

This is a sensible move which means that it will no longer be necessary for individuals to pass a 10% employment test in order to be able to claim a deduction for personal superannuation contributions.  

Currently, an individual can only claim a deduction for personal contributions where less than 10% of their adjusted income for the year relates to employment activities.  

The 10% test can make it difficult for people who have started their own business to make deductible superannuation contributions where they also have part-time work.

Tax back for low income earners contributing to super

Date of effect: 1 July 2017

A Low Income Superannuation Tax Offset (LISTO) will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low-income earners, up to a cap of $500.  

The LISTO applies to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.

Members of certain prescribed funds would not be entitled to deduct contributions to those schemes.  

Prescribed funds will include all untaxed funds, all Commonwealth defined benefit schemes, and any State, Territory or corporate defined benefit schemes that choose to be prescribed.

'Catch-up' concessional contributions

Date of effect: 1 July 2017

If your superannuation balance is less than $500,000, you will be able to make additional concessional contributions if you have not reached your concessional contributions cap in previous years. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.

Removing contribution restrictions for those 65 to 74

Date of effect: 1 July 2017

Currently, people aged 65 to 74 have a number of restrictions inhibiting their capacity to contribute to superannuation, including a work test. 

The Government is changing all that so that people under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.   In some circumstances it will be an opportunity to boost retirement savings from sources other than work, such as downsizing the family home. 

Boosting the super balance of your spouse

Date of effect: 1 July 2017

The low-income spouse superannuation tax offset income threshold will increase to $37,000 (from $10,800) from 1 July 2017. The offset provides up to $540 per annum for the contributing spouse.

More Information

For more information about the 2016 Federal Budget and how it impacts your superannuation structures & investment strategies, contact us on 02 9957 4033. 

Budget 2016

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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