A number of key superannuation changes were announced in last night’s Federal Budget, making this a very significant Budget for superannuation. New measures will see low income earners continue to receive an important tax offset, while those earning over $250,000 will pay a higher rate of tax on their super contributions.
In a bid to limit the amount of super you can contribute over a lifetime, the Government has also announced a $1.6 million cap for transfers to pension accounts.
Importantly, most members will not be negatively impacted by the new measures. The Government has estimated that higher contribution taxes, together with limits to amounts you can contribute to super, will affect a very small percentage of Australians who earn higher incomes.
These measures have different starting dates, some are effective immediately, others next year and some retrospectively.
Below is a summary of the key changes. If you have any questions, contact us on 1300 LGSUPER (1300 547 873) or you can follow the links below to the consumer fact sheets released by the Government.
A tax offset that provides a super savings boost of up to $500 a year for those members earning up to $37,000 has been retained.
The Low Income Superannuation Tax Offset will replace the existing Low Income Superannuation Contribution (LISC) from 1 July 2017. The LISC was previously scheduled to expire on 30 June 2017.
From 1 July 2017, the annual concessional contributions cap of $30,000 for those members aged under 50 or $35,000 for those over 50 has been lowered to $25,000 for all members. The cap will be indexed in line with wages growth.
Effective from Budget night (3 May, 2016), a $500,000 lifetime cap on non-concessional contributions will apply for members aged up to 75. This will apply retrospectively by taking into account all non-concessional contributions made since 1 July 2007. The cap will be indexed in $50,000 increments in line with wages. If a member has already exceeded the cap, they are taken to have used up their lifetime cap but are not required to take the excess out of the superannuation system. This measure relates to non-concessional (after-tax) contributions, NOT concessional contributions.
From 1 July 2017, The Government will introduce a $1.6 million cap on the total amount of superannuation savings that can be transferred from a concessionally-taxed ‘accumulation account’ to a tax-free ‘retirement account’.
Superannuation savings accumulated in excess of the cap can remain in an accumulation superannuation account, where the earnings will be taxed at 15%.
Those members already in retirement as at 1 July 2017 with balances in excess of $1.6 million will need to either transfer the excess back into an accumulation superannuation account or withdraw the excess amount from their superannuation.
Members who think they may be affected by these new measures can contact us for further information.
From 1 July 2017, members with superannuation balances of $500,000 or less will be able to roll over their unused concessional cap amounts (now set annually at $25,000) for a period of five years. This measure–which means that those who qualify can make larger super contributions than $25,000 in some years, where they have ‘unused caps’ over the five year period–has been designed to provide more flexibility for those who can make extra contributions and assist those returning to the workforce.
Effective 1 July 2017, the tax exempt status of income from assets supporting transition to retirement income streams will be removed, meaning that the earnings tax in TTR pensions will be 15%. This change will apply irrespective of when the transition to retirement income stream commenced. Members will no longer be allowed to treat certain superannuation income stream payments as lump sums for tax minimisation purposes.
Members with incomes over $250,000 will now be required to pay an additional 15% tax on their super contributions. The threshold was previously $300,000. To be liable for a total of 30% tax, a member would need to have at least $250,000 in combined income and concessional superannuation contributions. This change will also be reflected in defined benefit schemes.
From 1 July, 2017, anyone under 75 will be able to claim an income tax deduction for personal superannuation contributions to an eligible fund, up to the new $25,000 concessional contribution cap. Previously, many self-employed people were unable to claim a deduction on their personal superannuation contributions, and not everyone has access to salary sacrificing arrangements. These amounts will count towards a member’s concessional contributions cap, and be subject to 15% contributions cap.
From 1 July 2017, the eligibility rules for claiming the tax offset for superannuation contributions partners make to their low income spouses will be extended. The current 18% tax offset of up to $540 will be available for any member, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. This is an increase from the current $10,800. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000. Members will be able to make contributions on behalf of their spouse who is under age 75.
From 1 July 2017, members of defined benefit schemes will be subject to the above changes, with a few exemptions for some funds. Members of defined benefit schemes will be permitted to make concessional contributions to accumulation schemes. However, the $25,000 cap will be reduced by the amount of their ‘notional contributions’. The $250,000 threshold for the high income contributions tax will also apply.
From Budget night, non-concessional contributions to defined benefit schemes made since 1 July 2007 will be included in the $500,000 lifetime cap, but will not be required to be withdrawn.
If a member with a defined benefit account exceeds their lifetime non-concessional contributions cap, ongoing contributions to the defined benefit account can continue, but they will be required to remove an equivalent amount from any accumulation account on an annual basis if they have one.
The information on this page was prepared in May 2016 by the Australian Institute of Superannuation Trustees (AIST) ABN 19 123 284 275. The information on this page is of a general nature and does not take into account your personal objectives, situation or needs. You should consider obtaining professional financial, taxation and or legal advice tailored to your personal circumstances prior to making any financial decision.
This has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Superannuation Scheme – Pool A (ABN 74 925 979 278) and Pool B (ABN 28 901 371 321) (‘Local Government Super’). This document contains general advice only and does not take into account your personal objectives, situation or needs. You should consider obtaining professional financial, taxation and or legal advice tailored to your personal circumstances prior to making any financial decision.