The 2016/17 Federal Budget has made the most significant changes to Australia’s superannuation system since the 2006/07 Budget. However, most of these changes will not become effective until 1 July 2017.
Here are 10 ways the changes will affect you:
1.Non-concessional (after tax and voluntary) contributions will be subject immediately to a lifetime cap of $500,000 taking into account all non-concessional contributions made since 1 July 2007. Previously the annual cap was $180,000 or $540,000 every three years if aged under 65.
This will have the effect of ensuring wealthy Australians cannot continue maximising the annual cap in order to build multi-million dollar super balances at a low tax rate, with a view of ensuring the main purpose of superannuation is to provide a reasonable income in retirement.
2.From 1 July 2017 a cap of $1.6 million will apply to the amount of money retirees can transfer tax-free into superannuation accounts during their retirement phase.
This will apply retrospectively so that any amounts transferred to retirement superannuation balances that exceed $1.6 million will be taxed at 15% on earnings and 10% tax on capital gains; this will apply equally to SMSFs.
3.From July 2017, people who earn less than $250,000 will pay 15% tax on before tax super contributions whilst those who earn more than $250,000 will pay 30% tax. This has been reduced from the threshold amount of $300,000.
Whilst the increase in tax is significant, a 30% tax on superannuation for individuals who earn more than $250,000 is still comparatively low when compared to the 47% income tax that they would otherwise have to pay.
4.From 1 July 2017 the annual cap on concessional contributions (amount you can put into super as a salary sacrifice and pay 15% tax on, or 30% if you earn over $250,000) is $25,000 for everyone.
This used to be $30,000 for under-50s and $35,000 for those aged 50-plus.
An employee who exceeds the concessional cap will have to pay their top marginal tax rate on the excess amount rather than 15%. However, the ATO will apply a 15% tax offset to recognise that 15% tax has already been paid on the excess concessional contributions.
Note: Exceeding the cap will likely incur an interest penalty known as an excess concessional contributions charge as a result of the tax being collected later than normal. This measure is forecasted to affect only 3% of contributors.
Women and Carers
5.Unused concessional caps can be rolled over for up to five years for those with account balances of $500,000 or less, so people with interrupted work arrangements such as women and carers are not prevented from making catch-up contributions to their super.
65- 74 year olds
6.The current minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions will be removed. From July 2017, all individuals under 75 will no longer have to satisfy a work test and will be able to make voluntary contributions and receive contributions from their spouse.
7.From 1 July 2017, the Government will improve flexibility and choice in superannuation by allowing all individuals up to age 75 to claim an income tax deduction for personal superannuation contributions.
Currently the ability to claim a tax deduction for personal superannuation contributions is restricted by the ‘10% rule’. For more information click here.
Lower income earners
8.From 1 July 2017 workers whose take home pay is less than $37,000 are entitled to a tax offset of $500 to ensure they do not end up actually paying more tax on super contributions than they do on their income.
9.From 1 July 2017, people aged 65-74 will also now be able to make contributions to, and receive contributions from their spouse.
10.The government also proposes by 1 July 2017 to increase access to the spouse super tax offset by raising the lower income threshold for the receiving spouse from $10,800 to $37,000.
A contributing spouse will be eligible for an 18 per cent offset worth up to $540 for contributions made to an eligible spouse’s superannuation account.