Super and the 2016 Federal Budget
The Australian Government handed down its 2016 Federal Budget on Tuesday 3 May, with a series of proposed changes announced for superannuation and income tax.
See our guide below for more details on the key superannuation measures announced and how they could impact you and your super. Any proposed changes will only take effect if they pass through the Senate and become legislated.
- $1.6 million cap on super pensions
From 1 July 2017, a $1.6 million cap on the transfer of super balances into the tax-free retirement phase will apply. This means you can transfer up to $1.6 million from an accumulation account into a pension account (where the investment earnings are tax free). Currently, there is no cap on the amount of money you can transfer to a pension account.
The transfer balance cap will apply to both current retirees and anyone yet to enter retirement phase.
Existing tax-free retirement phase superannuation balances above $1.6 million will have to be transferred to either an accumulation account where a 15% concessional tax rate applies to investment earnings or withdrawn from superannuation by 1 July 2017.
- Changes to transition to retirement income products
Currently, any investment earnings on transition to retirement income products (such as LGIAsuper’s Transition to Retirement Pension account) are tax free. However, the Budget includes a measure to remove the ‘tax free’ status of investment earnings on transition to retirement income products.
- Changes to contribution caps
From 1 July 2017 the concessional contributions cap will reduce to $25,000 for all individuals. This is lower than the $30,000 cap that currently applies to those aged under 49 and the $35,000 cap that applies to those aged over 49.
Anyone with less than $500,000 in super can ‘catch up’ their contributions by rolling forward unused concessional contributions under the cap for up to 5 years.
Effective from 7.30pm 3 May 2016, the Australian Government has proposed a $500,000 lifetime non-concessional contributions cap. Previously an annual cap of $180,000, or $540,000 every 3 years if under age 65, applied. The new lifetime cap will take into account all non-concessional contributions made since 1 July 2007. If you have already made non-concessional contributions above $500,000 you will not be required to take the excess out of superannuation.
- Superannuation support for low income earners remains
With the existing low income superannuation contribution scheme (LISC) due to expire on 30 June 2017, the Government has introduced the Low Income Superannuation Tax Offset as a replacement initiative.
The new measure offers the same benefits as the LISC, by providing a tax offset of up to $500 on the concessional super contributions made by those earning less than $37,000 each year. This means those individuals affected will continue to avoid paying more tax on their super contributions than they do on their income.
- Removing contribution restrictions for older Australians and spouses
Currently, individuals aged between 65 and 74 must satisfy a work test before they can make super contributions.
From 1 July 2017, anyone aged between 65 and 74 can make contributions, and receive contributions from their spouse, without needing to meet eligibility criteria around the number of hours worked within a financial year.
An extension to the eligibility criteria for individuals claiming a tax offset when making a super contribution to their spouse’s account is also proposed. Currently, you could receive a tax offset of 18%of the first $3,000 of contributions you make to your partner’s super, subject to their income not exceeding $10,800. From 1 July 2017 the offset will continue to be set at 18% of eligible contributions, capped at $540 each year. The offset will be gradually reduced for incomes above $37,000 and completely phased out at income above $40,000.
- Tax deductibility for personal superannuation contributions
More employees and a wider range of self-employed people will be allowed to claim a tax deduction for personal superannuation contributions. Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10% of their income from salary or wages.
From 1 July 2017, anyone under 75 will be able to claim an income tax deduction for personal superannuation contributions. Amounts contributed under this rule will count towards the concessional contributions cap and be taxed at 15%.
- Removal of anti-detriment provisions
From 1 July 2017, the anti-detriment payment will be abolished. Broadly speaking, this payment compensates certain beneficiaries of superannuation benefits paid because of the death of a member, for the effect of tax on contributions.
- Changes to concessional contributions tax
Currently, higher-income earners with a total income in excess of $300,000 pay an additional 15% contributions tax on any before-tax super contributions. This means they pay 30% instead of the standard 15% concessional tax.
From 1 July 2017 the additional 15% contributions tax will apply to a lower income threshold of $250,000.
- Changes to income tax thresholds
The lower limit for the second highest income tax bracket will rise from $80,000 to $87,000 from 1 July 2016. This means the marginal income tax rate for individuals in that range will reduce from 37 to 32.5 cents in the dollar (rather than 37 cents).
From 1 July 2017, the temporary deficit levy of 2% charged to individuals with an annual income of over $180,000 will cease.
Want to know more?
This year’s Budget saw many initiatives announced that could impact your financial situation.
Our trusted and reliable team can help you make sense of the proposed changes and explore strategies to help you achieve a stronger financial future. Contact us to start a conversation. We’d love to hear from you.
To learn more about other initiatives, visit the Australian Government’s official Budget 2016-17 website.