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Superannuation changes…again

Written by: Charis Liew on Friday, 16 September 2016

The Treasurer Scott Morrison, has announced a number of further changes to the superannuation system, modifying aspects of what had previously been announced as part of the 2016-17 Federal Budget.  

The changes follow extensive public consultation and debate regarding the impact of the proposed changes, in particular the retrospective nature of the $500,000 lifetime non-concessional contribution cap.

To help navigate through the superannuation reform proposals, we’ve prepared a summary of what’s currently still on the table, and what’s out.

Proposed Budget Measure

Status

A $500,000 lifetime limit on non-concessional contributions, retrospective from 1 July 2007

Scrapped – based on the Treasurer’s announcement, this has been  replaced with an annual $100,000 non-concessional contribution cap (subject to $1.6m superannuation balance limit)

A cap of $1.6m on the transfer of your super balance from accumulation to pension phase.

 

Retained – per Budget announcement

The Concessional Contribution limit to be reduced to $25,000, regardless of the individual’s age

 

Retained - per Budget announcement

Introduction of ‘Catch-up’ concessional contributions over 5 years from 1 July 2017 (available to those with superannuation balances of less than $500K).

 

Modified – this has now been deferred to a start date of 1 July 2018

The reduction of the Division 293 tax income threshold from $300,000 to $250,000, effective 1 July 2017

 

Retained - per Budget announcement

Removal of the “10% test” to claim a tax deductible concessional contribution, effective 1 July 2017

 

Legislation drafted – introduced 8 September 2016

Removal of the “work test” for individuals aged between 65 and 74, effective 1 July 2017

Scrapped - this is currently part of the draft legislation introduced 8 September 2016, but based on the Treasurer’s announcement, it will be removed entirely

Introduction of a Low Income Superannuation Tax Offset, effective 1 July 2017

 

Legislation drafted – introduced 8 September 2016

Increase to the Low Income Spouse Offset from $10,800 to $37,000, effective 1 July 2017

 

Legislation drafted – introduced 8 September 2016

Removal of the tax-free status of income earned on assets supporting Transition to Retirement Income Streams, effective 1 July 2017

 

Retained - per Budget announcement

Removal of the anti-detriment provisions, effective 1 July 2017

 

Retained - per Budget announcement

 

The Good

The retrospective impact of the $500,000 lifetime limit on non-concessional contributions  has been removed.  This measure would have significantly impacted on some individuals’ ability to build, or rebuild, their superannuation.  Small business owners, divorcees and women retuning to the workforce were likely to be the most affected.

The increase in the Low Income Spouse Offset will benefit a large number of individuals with a lower income who would otherwise pay a higher rate of tax on superannuation contributions than their other income.

 

The Bad

The increased restrictions on contributions (concessional and non-concessional) as compared to the pre-Budget situation will make it harder for many people to make the contributions necessary to fund their retirement. This means that you will need to start focusing on building your superannuation at a much earlier age, if you are to use it to full effect.

The deferral of some of the measures adds more uncertainty and complexity to the system, as does the pattern of continual change to the superannuation law from both sides of the political divide.

 

The Opportunity

Individuals should look at non-concessional contributions strategies, in particular for anything up until 30 June 2017 which (apart from the ‘bring-forward’ non-concessional contributions cap) will not be affected by the changes outlined above.

Treasury has since released further information regarding operation of the transitional rules for the bring-forward non-concessional contributions caps which have been triggered in the 2015-16 or 2016-17 financial years. Based on the announcements, the transitional bring-forward cap for the current year could be limited to $380,000 or $460,000, subject to the individual’s circumstances.  

For a review of your superannuation strategy and more information on how the proposed changes may impact you, please contact your local William Buck advisor.

The information provided in this article is based on our interpretation of relevant superannuation and taxation laws and guidance from Treasury as at 22 September 2016.

Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon with seeking further professional advice.  William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice.  Liability limited by a scheme approved under Professional Standards Legislation

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