The government’s May 2016 Federal Budget proposals and several subsequent modifications to its plans around super reform passed through both houses of parliament at the end of November.
With new regulations set to become part of Australian superannuation law, some of the rules around super contributions and the tax breaks available will change from 1 July 2017.
See what opportunities your employees could take advantage of before the end of the financial year.
What’s changing and how it could impact your employees
The after-tax super contributions cap will be reduced
Initially, the government planned to introduce a $500,000 lifetime cap on after-tax (non-concessional) super contributions, which it will no longer be implementing.
Instead, an annual after-tax contributions cap of $100,000 will be put in place, replacing the current cap of $180,000. Those under age 65 will still have the ability to bring forward three years’ worth of after-tax super contributions, with a maximum of $300,000 under the bring-forward rules.
The before-tax super contributions cap will also be lowered
The before-tax (concessional) contributions cap will decrease from $30,000 (or $35,000 for people turning 50 years of age and over in the financial year) to $25,000 per year for everyone, irrespective of age.
A pension transfer cap of $1.6m will be introduced
Individuals converting their super into a pension to derive an income in retirement will be restricted to transferring a maximum of $1.6 million into their tax-free pension account, not including subsequent earnings.
For those who already have retirement pensions in place, and who will have a balance above $1.6 million on 1 July 2017, the excess will need to be placed back into the super accumulation phase, where earnings will be taxed at the concessional rate of 15%, or taken out of super completely.
The income threshold for additional 15% contributions tax is changing.
The income threshold above which high income individuals are required to pay an additional 15% tax (a total of 30%) on their concessional superannuation contributions will reduce from $300,000 to $250,000 per annum.
Transition to retirement pensions will lose their tax exemption
Investment earnings on super fund assets that support a pension are currently tax free. However, this will no longer apply to transition to retirement (TTR) income streams.
Earnings on fund assets supporting a TTR income stream will be subject to the same maximum 15% tax rate that applies to accumulation funds.
Super opportunities this financial year
- Individuals can contribute $80,000 more in after-tax contributions than what will be possible from 1 July 2017, as the after-tax contributions cap will be reduced from $180,000 to $100,000 per year.
- Those under age 65 can also bring forward three years’ worth of after-tax super contributions up to a maximum of $540,000. This is significantly higher than the $300,000 limit that will apply from 1 July 2017.
- The before-tax contributions limit will remain at $30,000 (or $35,000 if for those turning 50 years of age or older this financial year) until 1 July 2017. This means a person can contribute $5,000 or $10,000 more in before-tax contributions respectively before the limit is reduced to $25,000.
Where to go for more information
To recap on some of the other changes coming in and when they’ll take effect, check out our May Federal Budget 2016/17 roundup and our subsequent article published in September, regarding changes to the government’s initial plans.
To find out how reforms to the superannuation system could affect you or your employees, speak to your account manager.