It has been a weary 12 months in politics across the world and as the USA begins to realise the full effect of a Trump leadership, we in Australia are now seeing the residual effects of our own 2016 federal election. Towards the end of 2016, a number of proposed changes to taxation, superannuation and social payments such as pension were set in place. In relation to Superannuation, a number of changes originally proposed in the 2016-2017 Federal Budget were legislated when the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 passed parliament on 23 November 2016.
The changes are positive overall, improving the equity, efficiency, and sustainability of super tax concessions and include:
1. Introduction of a transfer balance cap.
A $1.6 million cap has been introduced on the amount that can be transferred to super in retirement phase when earnings are tax-free. Additional savings can remain in an accumulation account (where earnings are taxed at 15 percent) or remain outside super. This comes into effect from 1 July 2017 and will be indexed in following years. Retired people with retirement phase balances below $1.7 million on 30 June 2017 will have 6 months from 1 July 2017 to bring their balances under $1.6 million.
2. Concessional superannuation contributions cap reduced.
The annual concessional contributions cap has been reduced to $25,000 (from $30,000 for those aged under 49 at the end of the previous financial year and $35,000 otherwise). This comes into effect from 1 July 2017.
3. Concessional superannuation contributions tax threshold reduced.
The threshold at which high-income earners pay Division 293 tax on their concessional taxed contributions to superannuation has been reduced from $300,000 to $250,000. This comes into effect from 1 July 2017.
4. Non-concessional contributions cap reduced and criteria introduced.
The annual non-concessional contributions cap has been reduced from $180,000 to $100,000. In addition, criteria for an individual to be eligible for the non-concessional contributions cap has been introduced and other minor amendments to the non-concessional contributions rules have been made. These changes come into effect from 1 July 2017.
5. Greater deductibility of personal contributions.
The requirement that an individual must earn less than 10 percent of their income from employment to be able to deduct a personal contribution to their super to make it a concessional contribution has been removed. This will apply from the 2017-18 income year.
6. Allowing 'catch-up' concessional contributions.
Individuals whose superannuation balance at the end of the previous financial year is less than $500,000 will be able to carry forward unused concessional cap amounts from the previous five years. This applies to working out an individual's concessional contributions cap from the 2019-20 financial year onwards.
7. More tax offsets for spouse contributions.
This increases the amount of income an individual's spouse can earn before the individual stops being eligible to a tax offset for contributions made on behalf of their spouse. This will apply from the 2017-18 income year.
8. Abolishing the anti-detriment rule.
Super Guarantee rate increase changes were previously legislated to increase according to the following timetable:
The anti-detriment provision which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependents will be removed from 1 July 2017.
The Super Guarantee contribution rate is set to reach 12% in 2025
With the above-mentioned changes taking effect primarily around the new tax year, 1 July 2017, now is the perfect opportunity and time to review your current Superannuation structures and see how you can take advantage of the upcoming opportunities.
The Schuh Group Financial Planning Team are offering free "Super Strategy Sessions" from February 1, 2017, for any client wanting to position themselves for continued growth and success. Contact Dominique Schuh direct at firstname.lastname@example.org.