Superannuation reform changes
1. Effective Budget Night – 7.30pm (AEST) 3 May 2016
1.1 New lifetime cap for non-concessional superannuation contributions
The government will introduce a $500,000 lifetime non-concessional contributions cap.
The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 (i.e., from the 2008 income year) and will be indexed in $50,000 increments in line with average weekly ordinary times earnings.
If an individual has exceeded the cap prior to commencement date (being 7.30 pm (AEST) on 3 May 2016 (i.e., Budget night)), they will be taken to have used up their lifetime cap but will not be required to take the exc.cess out of the superannuation system
It is important to be aware that the lifetime non-concessional contributions cap will replace the existing non-concessional contributions cap, which allow non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65). Note that, similar changes are proposed to apply to contributions into defined benefit accounts and constitutionally protected funds.
2. Changes effective from 1 July 2017 (i.e., effective from the 2018 income year)
2.1 Allow catch-up concessional superannuation contributions
From 1 July 2017, the government will allow individuals with a superannuation balance of less than $500,000 to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.
2.2 Taxing earnings on assets supporting a Transition to Retirement Income Stream From 1 July 2017, the government will remove the tax exemption on earnings of assets supporting Transition to Retirement Income Streams (‘TRIS’), being income streams of individuals over preservation age but not retired.
2.3 Introduction of a $1.6 million ‘superannuation transfer balance cap’
From 1 July 2017, the government will introduce a $1.6 million ‘superannuation transfer balance cap’ on the total amount of accumulated superannuation an individual can transfer into pension phase.
2.4 Reducing the concessional contributions cap
From 1 July 2017, the government will lower the annual cap on concessional superannuation contributions to $25,000.
2.5 Changes to the contribution rules for those aged 65 to 74
From 1 July 2017, the government will remove the current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement. Specifically, the government will remove the requirement that an individual aged 65 to 74 must meet the ‘work test’ before making voluntary or nonconcessional contributions to superannuation.
2.6 Tax deductions for personal superannuation contributions
From 1 July 2017, the government will change the law to allow all individuals under age 75 to claim an income tax deduction for personal superannuation contributions. Individuals who are, for example, partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from the proposed changes.
2.7 Changes to the ‘high income contribution rules’ (Division 293)
From 1 July 2017, the government will lower the Division 293 threshold (i.e., the point at which high income earners pay additional contributions tax of 15%) from $300,000 to $250,000.
2.8 Removal of the anti-detriment provision in respect of death benefits
From 1 July 2017, the government will remove the anti-detriment (deduction) provision. Briefly, the anti-detriment provision allows the spouse (or former spouse) and/or children of a deceased fund member to effectively obtain a refund of all contributions tax paid by the deceased member during their lifetime.
2.9 Removing election to treat pension payments as lump-sum payments
The government will remove the rule that allows individuals to treat certain superannuation pension payments as lump-sums for tax purposes (which currently makes them tax-free up to the low rate cap of $195,000).
Currently, an individual drawing down an account-based pension from their superannuation fund can generally make an election, under special income tax rules, for a benefit withdrawal not to be treated as a pension benefit. If such an election is made, the benefit withdrawal is treated (and taxed) as a lump sum benefit instead.
2.10 Improve superannuation balances of low income spouses
From 1 July 2017, the government will increase access to the low income spouse superannuation tax offset by raising the income threshold for the low income spouse to $37,000 (from $10,800). The offset is gradually reduced for income above this level and completely phases out at income above $40,000.
2.11 Introducing a Low Income Superannuation Tax Offset (LISTO)
From 1 July 2017, the government will introduce a Low Income Superannuation Tax Offset (‘LISTO’) to reduce tax on superannuation contributions for low income earners. The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. The LISTO will apply to members with adjusted taxable income of up to $37,000 that have had a concessional contribution made on their behalf.