Following on from proposed superannuation changes announced in the Federal Budget in May 2016, the Government has just announced the following amendments;
The proposed $500,000 lifetime non-concessional cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year;
Opportunity: This does not come into affect until 1 July 2017. Therefore, there is still an ability to use the $540,000 bring forward non-concessional cap.
Individuals aged under 65 will continue to be able to ‘bring forward’ three years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums;
Opportunity: individuals can contribute up to $300,000 using the bring forward rules in non-concessional contributions from 1 July 2017
Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional (after tax) contributions from 1 July 2017;
Opportunity: allowing a couple to have up to $3.2m in superannuation before non-concessional contributions can no longer be received
From 1 July 2017, there will be a $1.6m transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase. Subsequent earnings on balances in the retirement phase will not be capped or restricted.
Savings beyond this can remain in an accumulation account (where earnings are taxed at 15%)
Opportunity: As a couple, there is an opportunity to hold $3.2m within the tax free pension environment.
In the May 2016 Federal Budget it was announced that the work test will be abolished for contributions made on or after the 65th birthday. This change has been abandoned and the work test will continue to apply. The work test is defined as being gainfully employed for at least 40 hours in a 30 consecutive day period within the financial year.
Opportunity: Can continue to make contributions up to age 75, as long as the work test is met
The Government will remove the tax exempt status of income from assets supporting ‘Transition to Retirement Income Streams”. These earnings will now be taxed concessionally at 15%
Opportunity: There is still significant benefits with implementing an effective “Transition to Retirement Strategy”
Expanding the spouse income threshold to $40,000 to be eligible for the tax offset on spouse contributions. The amount of this offset for an individual in an income year is equal to 18% of the lesser of: $3,000 less the amount by which total spouse income exceeds $37,000; and the sum of the spouse contributions made by the individual in the income year
Opportunity: increasing income threshold, opening the opportunity up to more couples.
Introducing the Low Income Superannuation Tax Offset that provides a maximum amount payable of $500 per year for each eligible individual who has paid tax on concessional contributions in their fund. This amount effectively returns the tax paid back to a low-income earner (adjusted taxable income under $37,000) where their relevant marginal tax rate would have been lower than the 15% flat rate applied to the concessional contributions.
Opportunity; support for individuals with taxable income under $37,000, providing a tax offset of $500 p.a.
It is important to note that all of these changes once Royal Assent has been received will apply from 1 July 2017.
For further information, please contact your Judge Adviser