Tuesday May 3rd will not be looked upon fondly by many retirees, given the restriction on tax concessions for those with balances over $1.6 million and the cash rate cut affecting the income return on stable and conservative cash deposits held by many.
Superannuation was a major feature of this year’s Budget and also of the financial headlines leading up to it. Several announcements were made and apply to both defined benefit funds and accumulation funds.
The key measures in the order presented in Budget Paper No.2 are:
+ Allow catch-up concessional contributions from 1 July 2017: Individuals can make additional concessional contributions where they haven’t reached their cap in previous years. Access to the unused cap will be limited to those with a balance under $500,000 and amounts are carried forward on a rolling basis for five years. Only amounts accrued from 1 July 2017 can be carried forward.
+ Abolished works test for aged 65 – 74 from 1 July 2017: People under aged 75 will no longer have to satisfy the 40 hours in 30 consecutive days works test to make contributions. They will also be able to receive contributions from their spouse.
+ Increase access to low income spouse superannuation tax offset from 1 July 2017: The income threshold for a low income spouse will increase from $10,800 to $37,000. An offset up to $540 is available for the contributing spouse.
+ Introduce $1.6 million transfer balance cap from 1 July 2017: This is a significant change. The cap of $1.6 million relates to the amount that an individual can transfer to the tax exempt ‘retirement phase’. Subsequent earnings on these balances will not be restricted. Amounts in excess of $1.6 million can be maintained in an accumulation phase where earnings will continue to be taxed at 15%. Members in retirement with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. A tax on amounts that are transferred in excess of the $1.6 million cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions. Defined benefit schemes will be treated based on receiving pensions over $100,000 from 1 July 2017.
+ Introduction of a lifetime cap for non-concessional contributions of $500,000: This is another significant change. The Government will introduce a $500,000 lifetime non-concessional contributions cap to improve the sustainability of the superannuation system. To ensure maximum effectiveness, 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 cannot result in an excess. However, excess contributions made after commencement will need to be removed or subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings. The lifetime non-concessional cap will replace the existing annual caps (currently $180,000 or $540,000 under the bring forward rule).
+ Introduce a Low Income Superannuation Tax Offset from 1 July 2017: This is to reduce tax on super contributions for low income earners and will be a non-refundable offset to superannuation funds. The cap is $500, so applies to individuals with adjusted taxable income up to $37,000.
+ Concession contribution cap reduction to $25,000 from 1 July 2017: The cap is currently $35,000 for people over 50 and $30,000 for everyone else.
+ Decrease Division 293 tax threshold from $300,000 to $250,000 from 1 July 2017: This applies an extra 15% tax on concessional contributions so that the tax rate on contributions for people earning more than $250,000 becomes 30%.
+ Removal of anti-detriment provisions from 1 July 2017: Removing the anti-detriment provision to align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of superannuation. Lump sum death benefits to dependants remain tax free.
+ Removal of tax exemption on assets supporting Transition to Retirement pensions from 1 July 2017: Transition pensions are for people who have reached preservation age but are not yet retired. The rule allowing individuals to treat certain super income streams as lump sums for tax purposes will also be removed.
+ Tax deductions for personal super contributions from 1 July 2017: The Government has removed the 10% test that applies to making concessional contributions when an individual has employment and non-employment income. From 1 July 2017 individuals up to age 75 can claim a deduction for super contributions regardless of their employment circumstances, up to the concessional cap.