 Snapshot of how the superannuation measures in the 2016/17 federal budget may affect you…
If I am in Transition to Retirement and withdraw a TRIS pension…
From 1 July 2017, earnings on investments held in Transition to Retirement Income Streams (‘TRIS’) will be taxed at 15% (currently 0%). A TRIS pension is a pension that is started with super money when you have reached your preservation age (which is between 55 and 60, depending on your date of birth). Once permanently retired it is expected that the underlying earnings will then be taxed at 0%.
I have an asset in my superannuation fund which has a significant capital gain that I have been thinking about selling….
If you are currently in Transition to Retirement, you may want to take advantage of the current tax exemption on earnings and sell the asset prior to 1 July 2017.
If I have more than $1.6m ($1.6M each for a couple) and am in pension phase….
From 1 July 2017, the government will introduce a $1.6 million superannuation transfer balance cap on the total amount of accumulated superannuation an individual can transfer into pension phase.
By way of background, under current law, if a fund member moves from accumulation phase into ‘pension phase’, earnings on assets supporting the pension (income tax and capital gains) are tax free in the fund (subject to certain conditions). Furthermore, there is no limit on the amount of accumulated superannuation that an individual can transfer into pension phase.
Under the proposed changes, if 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%).
Importantly, fund members already in pension phase with balances above $1.6 million will be required to reduce this balance to $1.6 million by 1 July 2017 (e.g., it seems such action may include the withdrawal of funds from the superannuation environment, or return a portion of the balance held in pension to accumulation phase via a partial commutation).
It is proposed that, if the $1.6 million cap is exceeded, the excess amount plus earnings on the excess will be subject to a tax. It is not currently clear as to whether individuals will have the option to withdraw the excess to avoid this penalty tax (i.e., similar to the tax treatment currently afforded excess non concessional contributions).
If I am aged 65-75 and have to pass the work test each year to make personal superannuation contributions…
From 1 July 2017, the government will remove the current requirement that an individual aged 65 to 74 must meet the ‘work test’ before making voluntary or non concessional contributions to their superannuation fund.
I intend to make substantial non concessional contributions into my superannuation fund over the next few years to top up my super before I retire….
The government will introduce a $500,000 lifetime non-concessional contributions cap.
The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 (i.e., from the 2008 income year) and will be indexed in $50,000 increments in line with average weekly ordinary times earnings.
If an individual has exceeded the cap prior to commencement date (being 7.30 pm (AEST) on 3 May 2016 (i.e., Budget night)), they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system. However, if after commencement, an individual makes non-concessional contributions that cause them to exceed the cap, they will be notified by the ATO and must withdraw the excess from their fund.
Individuals who choose not to withdraw contributions will be subject to penalty tax.
It is important to be aware that the lifetime non-concessional contributions cap will replace the existing non-concessional contributions cap, which allow non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65).
I intend to make substantial non concessional contributions into my superannuation fund over the next few years to top up my super before I retire and my current fund balance is < $500,000….
From 1 July 2017, the government will allow individuals with a superannuation balance of less than $500,000 to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.
Only unused amounts accrued from 1 July 2017 can be carried forward, and can only be carried forward on a rolling basis for a period of five consecutive years.
Allowing people to carry forward their unused concessional cap provides them with the opportunity to ‘catch-up’ if they have the capacity and choose to do so.
I intend to make personal contributions into my superannuation fund and claim a deduction…..
From 1 July 2017, the government will lower the annual cap on concessional superannuation contributions to $25,000. Until this time, the existing concessional contributions caps, being $30,000 for those aged under age 50 years, and $35,000 for those aged 50 years and over, will apply.
I am employed and would like to make a personal contribution to my super fund….
From 1 July 2017, tax deductions will be able to be claimed for personal contributions regardless of employment status. Currently only self employed people and those who earn, 10% of total income from employment sources are eligible to claim a deduction. Note that the concessional contribution caps apply to both employer contributions and personal contributions so you must ensure that that the total does not exceed the concessional contributions cap.
I earn more than $250,000pa….
Currently, Division 293 imposes an additional tax of 15% on certain concessionally taxed contributions (e.g., certain concessional contributions) where an individual’s total ‘income’ for an income year exceeds $300,000. Concessional contributions subject to tax under Division 293 are effectively taxed at 30%.
From 1 July 2017, the government will lower the Division 293 threshold (i.e., the point at which high income earners pay additional contributions tax of 15%) from $300,000 to $250,000.
Note:
Concessional contributions include:
- Salary sacrifice amounts,
- Superannuation guarantee amounts (employer contributions)
- Personal contributions claimed as a tax deduction, and
- Certain other amounts.
Generally, non-concessional contributions are contributions made into your super fund that are not included in the super fund’s assessable income. The most common type is personal contributions made by the member for which no income tax deduction is claimed.
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