After months of Government deliberation, public outcry and political backflips the largest superannuation reform legislation in almost 10 years finally passed both houses of parliament on 22 November 2016.
Though these superannuation changes have been marketed by the government as some kind of Robin Hood approach to a seemingly flawed system, the impact and significance of these changes will be felt by all those saving for retirement especially the wider middle class Australians and not just those considered wealthy.
A Bit of Background
The Government’s superannuation reforms were first unveiled by Treasurer Scott Morrison in the May budget amid a wave of uproar from experts, the superannuation industry and the general public alike due to the extent and timeline for the introduction of the reforms.
The legislation has undergone a number of changes since the original proposals, the Government finally settling on a watered down version as a compromise to ensure they were passed through parliament.
The Governments changes are aimed at making Australia’s superannuation system “fairer and sustainable” in the long term by reducing the benefits of superannuation to high wealth individuals.
The Key Changes
1. Concessional Contribution cap reduced from $30,000-$35,000 to $25,000
The cap on concessional contributions will no longer be determined by age and instead will be $25,000 for everyone.
2. Removal of 10% income test on deductible personal contributions
The requirement that less than 10% of taxable income must come from wages/salaries has been removed and now anyone can claim a personal deduction for contributions subject to the above caps.
3. Div 293 Tax Income Threshold reduced from $300,000 to $250,000
Taxpayers with personal taxable income in excess of $250,000 will now need to pay an additional 15% in contribution tax on their concessional contributions.
4. Ability to catch-up on concessional super contributions for those with balances less than $500,000
Individuals will be able to make additional concessional contributions where they have not used up their cap in the previous 5 years if their balance does not exceed $500,000.
5. Ability to make non-concessional super contributions limited to those with balances less than $1.6 mil
Individuals can no longer make non-concessional contributions once their balance exceeds $1.6 mil.
6. Non-concessional contribution cap lowered from $180,000 to $100,000
The ability to bring forward the cap of an additional 2 years worth of non-concessional contributions will still be available to those under the age of 65.
Those who trigger their bring forward rules in the 2016 or 2017 years and not use up the existing cap by 30 June 2017 will have the remaining cap adjusted down inline with the new cap.
7. Low Income Superannuation Tax Offset available to those with low individual taxable income
The current low income super contribution will be replaced with a tax offset for the same amount to those with personal taxable income of less than $37,001.
8. Removal of tax-free exemption of earnings from transition to retirement pensions
There will now be no tax benefit to starting a transition to retirement pension.
9. $1.6 mil cap on amounts transferred into an account based pension
A $1.6 million pension cap will be introduced, earnings on this cap will remain tax free the balance will be left in accumulation phase and the earnings taxed at 15%.
10. Temporary CGT relief available to funds where there is a gain resulting from the $1.6 mil cap
Assets that are moved into accumulation due to the new $1.6 mil cap will be able to have their costbase reset to their 1 July 2017 value to reduce CGT implications in the future.
What should you be doing?
A few things worth thinking about before 1 July 2017 rolls around and most of the changes come into effect are:
- Utilising the $540,000 bring forward non-concessional cap before it drops to only $300,000,
- Starting a transition to retirement pension for the remainder of 2017 financial year while earnings on them are tax free
- Obtaining market valuations on various assets to have their costbase reset and thus benefit from the CGT relief
These changes whilst wide reaching do provide opportunities but only if you act before 30 June 2017. CIB Accountants & Advisers will be holding free seminars in March to further explain the ramifications of these changes. If you are interested in attending the seminar please contact Krystina Wildman on (02) 9683 5999.