Recent superannuation changes

From 1 July 2017, a range of super reforms are set to come into play. The changes, which were originally proposed in the 2016 – 2017 Federal Budget, were legislated at the end of 2016, when the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 passed parliament. So what are the changes and how will they impact you?

Who will be impacted by the changes?

People who Inject more than $25,000 of their ‘pre-tax’ income into their superannuation fund each year

Anyone who currently earns more than $250,000 a year

People who currently have a superannuation balance in excess of/or approaching $1.6 million in retirement

Anyone who injects more than $100,000 of their ‘after-tax’ income into their superannuation fund each year

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How will it impact you?

Whether or not you find yourself falling into one or more of the four listed categories, you may still be left wondering: ‘how will these changes affect me?’ Sit tight, we break it down for you.

I am under 65

You may ake advantage of greater spousal tax offsets;

You may receive a low income superannuation tax offset (LISTO) from the Government; and/or

Have to reduce your level of pre-tax and/or after-tax superannuation contributions.

I have a super balance in excess of $1.6 million

If you have a superannuation balance in excess of $1.6 million when you reach retirement, you will be allowed to transfer $1.6 million into a retirement phase account. Any additional funds will have to remain in an accumulation account, where earnings will be taxed at 15%.

I am self-employed

Under the new legislation, self-employed professionals and contractors may be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap. Under the old laws, income tax deductions on personal super contributions were available only to those who earned less than 10% of their income through salary or wages. Under the reforms, more contractors and self-employed business owners will be able to make personal concessional contributions to their super.

It is imperative that you speak to your financial adviser before making any decisions regarding your super, your financial future or your retirement.

What are the changes?

As stated by the Australian Government’s office of Treasury, the below changes, once implemented, will help to improve the fairness, sustainability, flexibility and integrity of the superannuation system.

Of course, it is important to note that the legislated superannuation changes are only expected to affect 4% of all individuals with superannuation*.

The introduction of a transfer balance cap

From 1 July 2017, the amount of money a person can transfer into their superannuation account during the retirement phase will be capped at $1.6 million. While additional funds can be kept in an accumulation account or outside of the super fund, it is important to note that all earnings on this money will be taxed at 15%.

Concessional contributions capped

Under this change, Australians will now be allowed to make concessional superannuation contributions up to the value of $25,000 a year. This is down from $30,000 a year for those under 49 years of age, and $35,000 for those older than 49 in the year ending 30 June 2017. If you are currently paying more than $25,000 into your superannuation via concessional contributions, we will need to review and re-set this prior to 1 July.

Concessional contributions tax threshold adjusted

Previously, those earning $300,000 or more a year had their before tax super contributions taxed at 30%. Under the new legislation, that income has been lowered to $250,000. In other words, anyone earning more than $250,000 a year will have their concessional superannuation contributions taxed at 30%.

Non-concessional contributions capped

Under the legislated superannuation changes, Australians will only be allowed to make $100,000 worth of after tax super contributions each year – down from $180,000 previously. In addition, there have been other minor amendments made to the non-concessional superannuation contributions law. If you are seeking more information on this front, speak to me today.

Low income super tax offset to replace super contribution

Those earning up to $37,000 a year will receive a Low Income Superannuation Tax Offset (LISTO) contribution to their super fund. The ATO will determine a person’s eligibility for LISTO and, following this, the contribution will then be paid into the person’s superannuation account. The LISTO contribution will be equal to 15% of their total pre-tax super contributions for an income year, capped at $500. If you or someone you know falls into this band, now is the time to speak to me to see if you can take advantage of LISTO.

Improved access to concessional contributions

Individuals under the age of 65 - as well as those aged 65 to 74 - who meet the work test, will be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap. Previously, an income tax deduction for personal superannuation contributions was only available to people who earn less than 10 per cent of their income from salary or wages. To put this in context, say you had just started up your own small business, but continued to work part-time while you got your business off the ground. In this example, let’s assume you earn approximately $10,000 a year from your part time work. Now, If your busness earned $80,000 during its first year in operation and you wanted to contribute $15,000 of all your earnings for the year to your superannuation, under the old rules you would not have been able to claim a tax deduction for this personal contribution. Under the new legislation however, you will be able to claim a tax deduction for your personal contributions.

Carry-forward contributions

Individuals with a total superannuation balance of less than $500,000 just before the beginning of a financial year can carry-forward unused concessional cap space (for up to 5 years) to use if they have the capacity and choose to do so.

Anti-detriment rule now abolished

Under this new law, a super fund will not be able to pay a refund of a member’s lifetime superannuation contributions tax payments into a deceased estate. Likewise, the super fund will not be able to claim a tax deduction for this payment.

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*Australian Government, The Treasury