​

Superannuation customers will face a raft of new rules from 1 July 2017 after the Federal Government has successfully passed superannuation changes into law.

The tax concessions offered by super remain generous and the final reform package, approved by the Senate of 23 November, is in-line with the Government’s stated aim of ensuring the superannuation system is fair, flexible and fit for purpose.

Following is an overview of the new rules.

Pension balances capped at $1.6 million

From 1 July 2017, there will be a $1.6 million transfer cap on the total amount of superannuation you can transfer into the tax-free retirement phase. Future earnings on balances in the retirement phase will not be capped or restricted.

Savings beyond $1.6 million can remain in an accumulation account, where earnings are taxed at 15 per cent.

Existing retirees will have to bring their pension balances under $1.6 million before 1 July 2017

The transfer balance cap will be indexed in line with CPI, so the cap is forecast to be about $1.7 million in 2020-21.

Non-concessional contributions cap cut to $100,000

From 1 July 2017, the annual non-concessional contributions cap will be reduced to $100,000, down from the current cap of $180,000.

Individuals with a balance of more than $1.6 million will no longer be eligible to make non-concessional contributions.

As is currently the case, those under age 65 will be able to bring forward three years of non-concessional contributions.

This policy replaces the proposed $500,000 lifetime cap on non-concessional contributions announced in the 2016-17 Budget.

Concessional contributions cap cut to $25k

Annual limits on before-tax contributions will be cut to $25,000 for everyone from 1 July 2017. This is reduced from the current cap of $30,000 for most workers and $35,000 for those aged over 50.

Concessional contributions include the Superannuation Guarantee from your employer, salary sacrifice contributions and any contributions that you claim as a tax deduction..

More super tax on high incomes

People with adjusted taxable income of over $250,000, including any concessional contributions, will pay 30 per cent tax on their concessional contributions from 1 July 2017. At the moment only those with an adjusted taxable income of more than $300,000 pay the higher rate of 30 per cent.

The higher tax rate will only kick in if your adjusted taxable income exceeds $250,000. Even at the higher rate, super still offers a discount of about 17 per cent compared to the highest marginal tax rate.

Catch-up concessional contributions

Those with account balances of $500,000 or less will be able to carryover up to five years of unused concessional caps. This measure has been delayed by one year and will now come into effect on 1 July 2018.

The measure is designed to help those who take time out of work, whose income varies considerably from one year to the next, or whose circumstances have changed and are in a position to increase their contributions to superannuation.

If you’re not in a position to make concessional contributions of up to $25,000 a year, you may be able to take advantage of the carryover rules when your income is higher. Consider speaking to a financial adviser before changing your contribution strategy.

Legislating the objective of superannuation

The Government will legislate to define the primary objective of the superannuation system: “to provide income in retirement to substitute or supplement the Age Pension”.

The Government says the move will deliver stability by providing an “anchor” for future superannuation reforms.

Introducing the Low Income Superannuation Tax Offset (LISTO)

From 1 July 2017, the Government will replace the Low Income Superannuation Contribution (LISC) with the Low Income Superannuation Tax Offset (LISTO).

The LISTO effectively refunds the tax paid on concessional (before tax) contributions by individuals with adjusted taxable income of up to $37,000 – up to a cap of $500.

Widening access to concessional contributions

From 1 July 2017, the Government will allow all individuals under the age of 65, and those aged 65 to 74 who meet the work test, to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.

Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10 per cent of their income from salary or wages.

Extending the spouse tax offset

The Government will make the current spouse tax offset available to more couples so they can support each other in saving for retirement.

Currently, a tax offset of up to $540 is available for individuals who make superannuation contributions to their spouses with incomes up to $10,800.

Under the new rules the offset will be extended to those whose recipient spouses earn up to $40,000.

The spouse receiving the contribution must be under age 70 and meet a work test if they are aged between 65 and 69.

Transition to retirement changes

The Government will remove the tax exempt status of income from assets supporting a transition to retirement pension. However, transfers to a transition to retirement pension will not count towards the pension transfer cap, as they don’t benefit from tax-free earnings.

Individuals will also no longer be allowed to treat certain super income stream payments as a lump sum for tax purposes.

Abolishing anti-detriment payments

From 1 July 2017, the Government will remove the anti-detriment provision which allows super funds to claim a tax deduction if they pay an additional amount on top of a death benefit paid to eligible dependents. This effectively means that funds will no longer pay this additional amount to eligible dependents.
 

Need more information?

RBF Superannuation Consultants are available for appointments in Hobart, Launceston, Burnie and Devonport and now you can do your interview by Skype™ in the comfort of your own home. To make an appointment, just contact the RBF Enquiry Line on 1800 622 631.

RBF - the super fund you can talk to