A full suite of changes to the superannuation system

With the stated aim of achieving a more sustainable superannuation system, Treasury announced a full suite of superannuation tax reforms on Budget night.

Structurally, the “objective for superannuation” will be enshrined in a stand-alone Act as “to provide income in retirement to substitute or supplement the Age Pension”.  The new Act will also include an accountability mechanism to ensure that any new superannuation legislation will be considered in the context of the objective.

With effect from 1 July 2017 (with the exception of the $500,000 lifetime cap, which applies from Budget night) the superannuation tax concessions will be “retargeted” by:

  • introducing a $1.6 million balance cap on the total amount of superannuation that can be transferred into the tax-free retirement phase (estimated gain to the revenue of $2 billion over the forward estimates period);
  • lowering the personal income threshold from $300,000 to $250,000 (including concessional contributions) at which the 30% tax rate on contributions applies, and reducing the annual cap on concessional contributions to $25,000 (estimated gain to the revenue of $2.5 billion over the forward estimates period);
  • introducing a lifetime cap of $500,000 on non-concessional contributions (estimated gain to the revenue of $550 million over the forward estimates period); and
  • introducing the Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017 (estimated cost to the revenue of $1.6 billion over the forward estimates period).

Under the banner of “enhancing flexibility and choice”, Treasury announced that they will:

  • lift current restrictions to allow all Australians, under the age of 75, to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional cap (estimated cost to the revenue of $1 billion over the forward estimates period);
  • allow the carry forward of unused concessional caps to enable individuals with superannuation balances below $500,000 to make ‘catch-up’ superannuation contributions (estimated cost to the revenue of $350 million over the forward estimates period);
  • extend the eligibility for individuals to claim a tax offset for contributions made to their low income spouse’s superannuation (estimated cost to the revenue of $10 million over the forward estimates period); and
  • lift certain restrictions on contributions to superannuation that apply to Australians aged 65 to 74 and instead apply the same contribution acceptance rule for all individuals under 75 (estimated cost to the revenue of $130 million over the forward estimates period).

Treasury also announced measures aimed at reducing the extent to which the superannuation system may be used for tax minimisation and estate planning purposes by:

  • taxing the earnings of 'Transition to Retirement Income Streams', to reduce the incentive for them to be used as a vehicle to minimise tax (estimated gain to the revenue of $640 million over the forward estimates period); and
  • removing the outdated anti-detriment transitional provisions, which in practical terms, provide a refund of contributions tax paid over a lifetime (estimated gain to the revenue of $350 million over the forward estimates period).

Changes to personal income tax and Medicare levy low income thresholds

The marginal rate of tax on incomes between $80,000 and $87,000 will be reduced from 37% to 32.5%, which is designed to ensure that the average full-time wage earner will not move into the second highest tax bracket in the next three years.

This measure has an estimated cost to the revenue of $4 billion over the forward estimates period.

The Medicare levy low-income threshold for singles will be increased from the current income year from $20,896 in the 2014-15 income year to $21,335, while the individual phase-in limit will be $26,668 for the current income year (up from $26,120 in the 2014-15 income year).

For couples with no children, the family income threshold will be increased to $36,001 (up from $35,261 for the 2014-15 income year), while the additional amount of threshold for each dependent child or student will be increased to $3,306 (up from $3,238).

For single seniors and pensioners eligible for the Senior Australian and Pensioner Tax Offset (SAPTO), the Medicare levy low-income threshold will be increased to $33,738 (up from $33,044 for the 2014-15 income year). The phase-in limit for taxpayers eligible for the SAPTO is $42,172 for 2015-16 (up from $41,305). The threshold for families eligible for SAPTO will be increased to $46,966 for 2015-16 (up from $46,000).