What budget 2016 means for superannuation

Superannuation was a major focus in this year’s budget. An overview of the key changes is summarised below.

The threshold at which individuals pay higher tax on their super contributions lowered

The Div 293 threshold (the point at which people pay higher contributions tax) will be lowered from $300,000 to $250,000 from 1 July 2017.  This will limit the effective tax concessions provided to higher income individuals.

The lower Div 293 income threshold will also apply to members of defined benefits schemes and constitutionally protected funds currently covered by the tax. Existing exemptions (such as state higher level office holders and commonwealth judges) for Div 293 tax will be maintained.

Annual cap on concessional contributions lowered

The annual cap on concessional superannuation contributions will be reduced to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).

From 1 July 2017, the government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded defined benefits schemes and constitutionally protected funds. 

For individuals who were members of a funded defined benefits scheme as at 12 May 2009, the existing grandfathering arrangements will continue.

Tax exemption on earnings supporting income streams removed

The tax exemption on earnings of assets supporting Transition to Retirement Income Streams (TRISs) will be removed from 1 July 2017 (that is, income streams of individuals over preservation age but not retired).

Lifetime cap for non-concessional superannuation contributions

A lifetime non-concessional contributions cap of $500,000 will be introduced. It is proposed that the lifetime cap will be imposed retrospectively, taking into account all non-concessional contributions made on or after 1 July 2007. The change is proposed to apply from 7.30pm on 3 May 2016.

The lifetime non-concessional cap will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65).

Contributions made before commencement on 3 May 2016 cannot result in an excess. However, excess contributions made after commencement will need to be removed or be subject to penalty tax.

After-tax contributions made into defined benefits accounts and constitutionally protected funds will be included in an individual’s lifetime non-concessional cap. If a member of a defined benefits fund exceeds their lifetime cap, ongoing contributions to the defined benefits account can continue but the member will be required to remove, on an annual basis, an equivalent amount (including proxy earnings) from any accumulation account they hold. 

Restrictions on people aged 65 to 74 making super contributions to be removed

The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017. People under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.

The government will remove these restrictions and instead apply the same contribution acceptance rules for all individuals aged up to 75 from 1 July 2017. The measure will allow people aged 65 to 74 to increase their retirement savings.

Catch-up concessional superannuation contributions

Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017. Amounts will be allowed to be carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.

The measure will allow people with lower contributions, interrupted work patterns or irregular capacity to make “catch-up” payments to boost their superannuation savings. 

Taxpayers will be able to claim a tax deduction on personal superannuation contributions

From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.

Low income superannuation tax offset introduced

A low income superannuation tax offset (LISTO) will be introduced to reduce the contributions tax low income earners pay on their super contributions from 1 July 2017.

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 up to $37,000 that have had a concessional contribution made on their behalf.

Low income spouse tax offset threshold increased

The income threshold for the receiving spouse (whether married or de facto) of the low income spouse tax offset will be increased from $10,800 to $37,000 from 1 July 2017. The low income spouse tax offset provides up to $540 per annum for the contributing spouse.

Superannuation transfer balance cap introduced

A cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017. Subsequent earnings on these balances will not be restricted. This will limit the extent to which the tax-free benefits of retirement phase accounts can be used.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15 per cent). 

Individuals already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6m by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts (where earnings will be taxed at the concessional rate of 15 per cent).

Professional Development: RG146 Compliance Solution - Superannuation & SMSFs Intensive Workshop 2018: this program designed to address the competency requirements outlined in the ASIC Regulatory Guide 146 (RG146). Completion of this module will provide RG146 compliance in the specialist knowledge areas of Superannuation and Self-Managed Super Funds.

A tax on amounts that are transferred to the retirement phase 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.

Commensurate treatment for members of defined benefits schemes will be achieved through changes to the tax arrangements for pension amounts over $100,000 from 1 July 2017. 

Anti-detriment death benefit provision removed

The anti-detriment provision in respect of death benefits from superannuation will be removed from 1 July 2017.

The anti-detriment provision can effectively result in a refund of a member’s lifetime superannuation contributions tax payments into an estate, where the beneficiary is the dependant of the member.

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