In September 2016 the Government released a new superannuation reform package update. The changes are aimed at improving the fairness, sustainability, flexibility and integrity of the superannuation system.
[ctt template=”9″ link=”86Yxa” via=”no” ]The changes are aimed at improving the fairness, sustainability, flexibility and integrity of the superannuation system.[/ctt]
They are centred around three pillars: sustainability, integrity and flexibility. In this article you can read more about what the reform means to you and whether or not your super might be affected.
The updated reforms are as follows:
- Keep the work test. The Budget originally announced the removal of the work test and a level of harmonisation for 65 to 74 year olds. These measures have been removed.
- Remove the $500,000 lifetime non-concessional cap announced in the Budget.
- Reduce the annual non-concessional cap to $100,000. From 1 July 2017, non-concessional contributions will be subject to the new $100,000 cap. Clients will have until 30 June 2017 to utilise the current $540,000 cap across three years by triggering the bring forward rule. If clients trigger the bring forward rule but don’t use the full $540,000 cap by 30 June, future contributions are subject to the new cap, i.e., instead of the cap being $540,000 across three years, it might be $460,000 or $380,000 depending on when contributions are made.
- Cap non-concessional contributions at $1.6 million. Once an individual’s super balance reaches $1.6m, from 1 July 2017 they will no longer be able to make non-concessional contributions to super.
- Reduce the concessional contributions cap to $25,000. This measure applies to everyone from 1 July 2017.
- Limit pension balances to up to $1.6m. The reforms introduce a $1.6m ‘transfer balance cap’ on the amount of capital that can be transferred to the retirement phase of superannuation. For individuals in pension phase, the balance of their pension needs to be no more than $1.6m. If not, from 1 July 2017 the Tax Commissioner will direct their fund to reduce their retirement phase interests back to $1.6m and they will be subject to an excess transfer balance tax. Overall super balances can be more than $1.6m but only $1.6m can be transferred into a tax-free pension.
- Lower the threshold for the Division 293 tax on concessionally taxed contributions to $250,000.
- Push back ability to make ‘catch up’ contributions. From 1 July 2018, people with super balances below $500,000 will be able to rollover their unused concessional caps for up to 5 years. Unused cap amounts can be carried forward from the 2018-19 financial year; which means the first opportunity to use these new rules will be 2019-20.
- Remove the anti-detriment deduction. The reforms repeal section 295-485 ITAA 1997. The repeal applies to superannuation lump sum benefits paid because of the death of a member where that member died on or after 1 July 2017. However, from 1 July 2019, it applies to all superannuation lump sum benefits paid after this time, irrespective of whether the member died before 1 July 2017.
- Repeal regulation 995-1.03. Removes the ability for an individual to elect, before a payment is made, that the payment is not to be treated as a superannuation income stream benefit (making it a superannuation lump sum).
- Remove tax concessions on earnings on fund income. From 1 July 2017, the income from assets supporting transition to retirement income streams will no longer be exempt from tax but included in the fund’s assessable income.
- Improve access to concessional contributions. From 1 July 2017, all individuals under the age of 65, and those aged 65 to 74 who meet the work test, will be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap. This measure if particularly useful for contractors and those with who are part self employed and part salary & wage earners.
- Replace the Low Income Superannuation Contribution (LISC) with the Low Income Superannuation Tax Offset (LISTO). The LISTO refunds the tax paid on concessional contributions by individuals with a taxable income of up to $37,000 – up to a cap of $500.
- Extend the spouse offset. Extends eligibility to the offset where recipient spouses earn up to $40,000 (currently $13,800).
- Extend the tax exemption on earnings in the retirement phase to more products. Extends the tax exemption to deferred or pooled income stream products.
- Enshrine the concept of super as a means to fund retirement. This concept will now underpin the superannuation laws.
Not all of the exposure draft legislation is available for each of these measures. A further update is expected within a few weeks. For those wanting to plough through the detail, Treasury has updated their fact sheets on the various measures.
Superannuation is an important financial factor in the lives of all Australians. If you want to learn how to make the most of your Superannuation, speak to one of our specialists today.