Now that the coalition has returned to the job of governing the nation, it is a good opportunity to consider how the superannuation changes announced on 3 May 2016 in the Federal Budget will impact you.
Although there have been some reports that there are concerns within the Liberal party over their superannuation policies it seems that the policies introduced in the Federal Budget will proceed as expected.
So what were the key superannuation changes announced in the 2016 Federal Budget?
$500,000 non-concessional contribution cap
Currently, non-concessional contributions (i.e. contributions from after-tax income) are capped at $180,000 per year (or $540,000 under the bring forward rule).
In the Federal Budget the Government announced that they would introduce a $500,000 lifetime cap on non-concessional contributions. This will take into account contributions made from 1 July 2007. However, there will be no penalty if you have already exceeded this cap by making more than $500,000 in non-concessional contributions (before 7:30pm AEST on 3 May 2016). Any excess non-concessional contributions made after the cap commenced will need to be removed to avoid a penalty.
$1.6 million limit
Currently, if your superannuation account is in the retirement phase, any income earned on your superannuation investments is tax-free.
Under the Budget measures the Government will place a cap of $1.6 million on the balance able to be transferred to a retirement account effective from 1 July 2017. This means that the amount able to be transferred into a retirement phase superannuation account, on which income is tax-free, cannot exceed $1.6 million.
The excess (if you are fortunate enough to accumulate more than $1.6 million in superannuation by the time you retire) will need to be held in a separate account, on which income will be taxed at 15 per cent. Alternatively, you may invest this excess amount outside of the superannuation regime.
If you are already in retirement and have a balance in your retirement phase superannuation account in excess of $1.6 million, you will need to reduce that balance to $1.6 million by 1 July 2017.
You can currently contribute up to a maximum of $35,000 per year into superannuation at a concessional tax rate (generally 15 per cent). This includes compulsory superannuation contributions as well as additional contributions made through salary sacrificing arrangements etc.
Under the Budget measures the Government will reduce this to $25,000 from 1 July 2017. This new limit will apply to everyone (i.e. there will no longer be a higher cap for over-50s).
The Budget measures also provide for lowering the Division 293 threshold from $300,000 to $250,000. This means that concessional contributions, when added to your income over $250,000, will be taxed at 30%.
Catch-up superannuation contributions
Under the Budget measures, from 1 July 2017 the Government will allow people to catch up on concessional contributions if they do not reach the proposed $25,000 annual cap (discussed above).
Under this measure the cap would rollover for up to five years thereby allowing people to contribute up to $125,000 over five years provided their superannuation balance is below $500,000. This will be particularly useful for people taking maternity/paternity leave and others with interrupted work patterns.
Contributions from self-employed and non-wage earners
Under the Budget measure the Government will allow all individual contractors to make concessional contributions. Some of these individuals would not have been able to make concessional contributions under the existing regime.
Transition to Retirement Income Stream
People aged between 56 and 64, who are still working, are currently able to access some of their superannuation early. Earnings in these transition accounts are currently tax free but this will change from 1 July 2017. Under the Budget measures earnings on these transition accounts will be taxed at 15 per cent (the same as in the accumulation phase).
Removal of the work test for over-65s
Under the Budget measures the work test for people between 65 and 74 will be removed from 1 July 2017 making it easier for older Australians to increase their retirement savings.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.