The Australian Government Senate recently passed proposed legislation which gives effect to the much discussed superannuation reforms. The legislation contains the measures originally announced in the 2016/17 Federal Budget with some changes.
The majority of measures commence from 1 July 2017 (unless otherwise specified below).
Some of these changes may represent a real opportunity for you, and others may mean current strategies should be reassessed as part of your overall financial situation.
In summary, the following changes are occurring:
- The annual non-concessional (post-tax) contribution cap will reduce to $100,000 from the current amount of $180,000. If you are under the age of 65, you may still be able to use the 3 year ‘bring forward’ provision but at the lower amount of $300,000 (i.e. $100,000 x 3 years).
- The concessional (deductible) contribution cap will be reduce to $25,000 per annum for everyone. This includes employer contributions and salary sacrifice contributions.
- Individuals eligible to contribute to superannuation will be able to claim a tax deduction for personal contributions, up to the concessional contribution cap. This was previously not available to the majority of employees. If your income varies and it is difficult to plan a salary sacrifice arrangement, it means that coming up to the end of the financial year, top-up contributions can be made by you personally and claimed as a tax deduction.
- From 1 July 2018, a concessional contributions ‘catch-up’ opportunity will be introduced for those with total super balances of less than $500,000. This will allow you to carry forward unused concessional cap space (for up to 5 years) and increase your contributions going forward, above the maximum, by allocating to prior years.
- Introduction of a $1.6 million cap which can be transferred into pension phase where earnings are tax free. Amounts over this will need to remain in accumulation phase.
- Removal of 0% tax on investment earnings for transition to retirement pensions. This returns to 15% as per the accumulation fund tax rate.
- Individuals earning over $250,000 will pay 30% contribution tax on concessional contributions to superannuation instead of the standard 15% (the previous threshold was $300,000).
- Introduction of a low income superannuation tax offset. To ensure people who are earning less than $37,000 and are paying less than 15% tax, are not disadvantaged by putting money into superannuation.
- The eligibility for the spouse contribution tax offset income threshold has increased from $10,800 to $37,000. The maximum offset is $540 which is obtained when a $3,000 contribution is made to your spouse’s superannuation fund.
If you do not undertake regular reviews pre 30 June each year and feel these changes may affect you, please contact your Stonehouse Adviser.