What’s New in Superannuation?
The Federal Government’s ten superannuation reforms came into effect on 1 July 2017.
Here’s what’s changed.
The Federal Government says the reforms it announced in its budget make the superannuation system more sustainable. It has also made some rule more flexible to suite current working environments.
Access to concessional contributions
Previously, only people who earned less than 10 per cent of their income from salary or wages could claim a tax deduction for personal superannuation contributions. Now, generally, anyone under the age of 65 – and those aged 65 to 74 who meet the work test – can claim a tax deduction up to the concessional contributions cap.
This will benefit the 800,000* or so people who are partially self-employed and partially wage and salary earners – such as self-employed contractors, individuals employed by small businesses, freelancers – and individuals whose employers do not offer salary sacrifice arrangements.
Non-concessional contributions cap cut
The annual non-concessional contributions cap has been cut to $100,00 and $300,000 for those eligible to use the bring-forward provisions.
Non-concessional contributions will no longer be available to people with super balances of $1.6 million or more by the end of the previous financial year.
People under the age of 65 will still be able to bring forward up to three years of non-concessional contributions.
This measure, which is aimed at discouraging tax minimisation, is expected to affect less than 1 per cent of fund members.
Additional 15 per cent tax for high income earners and concessional contributions cap
The income threshold at which high-income earners pay additional 15 per cent tax on certain concessional contributions has been reduced, moving to $250,000 from $300,000. The annual cap on concessional (before-tax) contributions has also been lowered to $25,000.
The Treasury says the reduced threshold will affect about 1 per cent of superannuation account holders, while the lower annual concessional contributions cap will affect about 3.5 per cent.*
The transfer balance cap
There is now a $1.6 million cap on the total amount that can be moved into superannuation during the tax-free retirement phase. However, subsequent earning on
balances in the retirement phase will not be capped or restricted.
The transfer balance cap will grow with the consumer price index, meaning the cap is projected to be about $1.7 million in 2020-21.
People with existing super income streams were required to take action by 30 June 2017 to ensure that they had no more than $1.6 million in super income streams. Those whose income stream balances were more $1.6 million but equal to $1.7 million or less have until 31 December 2017 to ensure they take remedial action.
Less than 1 per cent of account holders will be affected,* as the average superannuation balance for a 60-year-old is expected to be $240,000 in 2107-18.
Low-income superannuation tax offset
A low-income superannuation tax offset replaces the low-income superannuation contribution. Under this measure, eligible individuals with an adjusted taxable income of up to $37,000 can get refunds on the tax paid on concessional contributions up to a cap of $500. This avoids the situation where low-income earners pay more tax on contributions than on their take-home pay. The refunds will go into the superannuation account.
It is estimated that about $3.1 million low-income earners will benefit, including about 1.9 million women.*
Catch-up concessional contributions
People with a total superannuation balance of less than $500,000 before the start of a financial year can use any carried forward unused concessional contributions for up to five years.
The spouse tax offset extended
The spouse tax offset is now available to more couples as eligibility has been extended to people whose recipient spouses earn up to $40,000. This is an increase from $13,800, and about 5,000 people are expected to use the change.*
Innovation barriers removed
The tax exemption on earnings in the retirement phase has been extended to encourage the creation of a wider range of products. This will provide more flexibility and choice for retirees to help them avoid outliving their savings.
Transition to retirement income streams
Taxable income from assets supporting transition to retirement income streams are no longer tax-exempt at the super fund level. Instead they will be taxed concessionally at 15 per cent.
Pension payment continue to be tax free if the individual is 60 or over
Individuals will also no longer be allowed to treat certain superannuation income stream payments as lump sums for taxation purposes. About 110,000 people will be affected.*
Anti-detriment rule abolished
The anti-detriment provision that allows superannuation funds claims a refund of the 15 per cent tax on contributions paid by the deceased member over their lifetime has been abolished. However, lump sum death benefits for eligible dependants will remain tax free.
As these changes are very complex, it’s a good idea to talk them through with an expert. A financial adviser may help you understand how these changes affect your unique financial situation, which may give you the confidence you need to make great decisions about your future.
*Source: Australian Government, The Department Treasury, ‘Superannuation Reforms’ and Millennium Financial Services Pty Ltd quarterly newsletter "Informed - Quarter 3"