Recent changes affecting superannuation contributions & pensions

Super contributions

The Government has recently introduced significant changes affecting superannuation most of which apply from 1 July 2017.  This is to inform you of the key changes, as they may impact on your future contributions.

From 1 July 2017, the following key changes may impact your super contributions for 2017 to the contribution rules will apply:

• Deductible contributions (concessional)- ie employer contributions, salary sacrifice contributions. If you are self-employed these are the contributions you claim as a tax deduction. Annual limit to be contributed has been reduced from $30,000 or $35,000 (depending on the individual’s age) to $25,000 for all individuals (irrespective of their age).
• Personal contributions (non – concessional) – these are after tax contributions i.e. money you put in your super that you have already paid the tax on and you do not claim a tax deduction – these are made if you have spare cash , received an inheritance or sold an asset
  • Reduced contribution limits – The annual contribution limit has been reduced from $180,000 to $100,000 per person. The $540,000 ‘bring forward amount has been reduced to $300,000 (i.e., 3 x the $100,000 annual non-concessional contributions limit) for 3 years.
  • New $1.6 million superannuation balance restriction for non-concessional contributions – An individual who has total superannuation entitlements of at least $1.6 million at the start of an income year will not be able to make non-concessional contributions in that year without breaching their limit.
• Claiming deductions for personal (after-tax) contributions – From 1 July 2017, all individuals under the age of 75 will be permitted to claim tax deductions for personal super contributions (voluntary concessional contributions). This applies to employees or those self-employed.

(d)     Extending the tax offset for spouse superannuation contributions – From 1 July 2017, you can claim the existing tax offset of $540 (maximum) for spouse contributions for a spouse whose income is less than $40,000 (the existing spouse income threshold is only $13,800).

(e)     Maximum $1.6m cap on super balances in pension phase (transfer cap) – The financial consequence for current retirees is, if they have more than $1.6 million of super in pension phase, they will need to withdraw the excess balance OR revert the excess amount to accumulation phase (which is then subject to 15% earning tax), before 1 July. If you are approaching this balance or if your and your partner’s balances together are over this balance some planning may be necessary.

 

Pensions

 Recent changes affecting superannuation pensions

From 1 July 2017, the key changes affecting superannuation pensions include:

• (a) New $1.6 million ‘transfer balance cap’ (‘TBC’) – The total amount an individual can transfer into a tax-free pension will be capped at $1.6 million from 1 July 2017. However, subsequent earnings on the assets supporting a pension will not be restricted. Prior to 1 July 2017, there is no limit on the amount that may be held as a tax-free pension interest.
  • Roll-back of excess amounts – An individual who breaches their TBC will be required to either transfer the excess amount (plus notional earnings thereon) into an accumulation account or withdraw the excess amount from superannuation to avoid losing the tax exemption on the pension.
  • Penalties – A 15% tax will apply to notional earnings on the excess amount. Second and subsequent breaches will be taxed at 30%. (There is some transitional relief).
  • Transitional CGT relief for pension assets – Funds transfers back their pension to accumulation phase before 1 July 2017 to comply with the TBC. This is important relief as it can help minimise any potential future CGT exposure with respect to these assets.
• (b) Removal of the tax exemption for Transition to Retirement Income Streams (‘TRIS’) – From 1 July 2017, the pension earnings exemption will be removed for assets supporting a TRIS, regardless of the date it commenced.  As a result, earnings on these assets will generally be taxed at 15%. CGT relief is available to TRIS assets.
• (c) Lump sum election – From 1 July 2017, individuals will no longer be able to elect to treat regular superannuation pension (e.g., TRIS) payments as a lump sum for tax purposes (which are tax-free up to the ‘low rate cap amount’ of $195,000 for the 2017 income year).

These are only a brief outline of the changes if you feel you are affected or would like to know more or discuss planning for your retirement please contact Michael Wunsch on 9816 3111.

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