2016 superannuation changes now confirmed

Legislation implementing the superannuation reform package announced in the 2016 Federal Budget received Royal Assent on 29 November 2016. The reform package will implement the largest changes to the superannuation system since 2007.

This Newsflash highlights the changes that we feel will have the biggest impact on our clients.

Concessional contribution cap reduced to $25,000 

 Effective 1 July 2017 

The concessional contributions cap will reduce to $25,000 per annum for everyone regardless of age from 1 July 2017. Currently the concessional contributions cap is $30,000 for clients under age 50 and $35,000 for ages 50 and over.

Comment: This is your last chance to get a $30,000 or $35,000 annual concessional contribution into super before the cap reduces in July 2017.

Catch-up concessional contributions

 Effective 1 July 2018 

Unused concessional contribution cap amounts will be able to be carried forward on a rolling basis over 5 consecutive years. This applies to unused cap amounts from 1 July 2018.

Access to unused cap amounts will be limited to individuals with a superannuation balance less than $500,000.

Non-concessional contribution cap reduced to $100,000

 Effective 1 July 2017 

From 1 July 2017 the annual non-concessional contribution cap will be reduced from $180,000 to $100,000 for individuals with a total super balance of less than $1.6m. Where a person’s total super balance is $1.6m or more, their non-concessional contribution cap will be reduced to nil (see below for more information on the $1.6m rule).

The bring-forward rule, which allows people to bring forward two future years of non-concessional contributions, will be retained for those under age 65. Therefore, taking into account the reduction in the nonconcessional cap to $100,000 in 2017–18, individuals will be able to make non-concessional contributions of up to $300,000 (previously $540,000) in one year using the bring forward rule depending on their total superannuation balance.

Transitional rules apply where the bring-forward rule was triggered in either the 2015–16 or 2016–17 financial year, but was not fully utilised.

Comment: This is your last chance to get up to a $540,000 non-concessional contribution into super before the cap reduces in July 2017.

Introduce a $1.6 million superannuation transfer balance cap

 Effective 1 July 2017 

A transfer balance cap will be introduced to restrict the total amount of superannuation that can be transferred from accumulation to pension phase to a maximum of $1.6 million. Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain the excess in accumulation phase (where earnings will be taxed at the concessional rate of 15%). The cap will be indexed in $100,000 increments in line with the consumer price index. A proportionate method which measures the percentage of the cap previously utilised will determine how much cap a person has available at any point in time.

For example, if an individual has previously used up 75% of their cap they will have access to 25% of the current (indexed) cap. Subsequent fluctuations in retirement accounts due to earnings growth or pension payments will not be considered when calculating the remaining cap.

Existing pension balances

Individuals already in pension phase as at 1 July 2017 with balances in excess of $1.6 million will need to either:

  • transfer the excess back into an accumulation account; or
  • withdraw the excess amount.

People who breach the cap will be subject to a tax on both the amount in excess of the cap and the earnings on the excess amount.

Transitional Rule: Where a person breaches their transfer balance cap on 30 June 2017 by less than $100,000, the excess amount will be disregarded for a period of six months.

Comment: As capital gains are not taxed in pension phase but are taxed in accumulation phase, it would be sensible to consider making any switches or other adjustments to your account before rolling monies back to accumulation phase.

Additional 15% contributions tax: threshold reduces to $250,000

 Effective 1 July 2017 

Division 293 tax, which is an additional 15% contributions tax payable by high income earners with income exceeding $300,000, will apply to those with income exceeding $250,000 from 1 July 2017.

The following table compares the tax concessions applicable on concessional contributions at various marginal tax rates:

 Marginal tax rate *
 Contributions Tax 
 Tax Concession 
 21%  15%  6%
 34.5%  15%  19.5%
 39%  15%  24%
 49%  15%  34%
 49%  30%**  19%

Transition to retirement pensions: removal of earnings tax exemption

 Effective 1 July 2017 

The tax exempt status of income from assets supporting transition to retirement (TTR) income streams will be removed from 1 July 2017. Earnings will then be taxed at 15% like any other super fund. This change applies irrespective of when the TTR income stream commenced, i.e. no grandfathering applies.

Increased access to spouse superannuation tax offset

 Effective 1 July 2017 

The current spouse superannuation tax offset will be available to more people due to an increase in the spouse income threshold from 1 July 2017.

The income threshold for the spouse superannuation tax offset is increasing from $10,800 to $37,000.

A contributing spouse will be eligible for an 18% offset worth up to $540 for contributions made to an eligible spouse’s superannuation account.

Low income superannuation tax offset

 Effective 1 July 2017 

A Low Income Superannuation Tax Offset (LISTO) will be introduced from 1 July 2017 to reduce tax on superannuation contributions for low income earners.

The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.

The ATO will determine a person’s eligibility for the LISTO and advise their superannuation fund annually. The fund will contribute the LISTO to the member’s account.

Anti-detriment payments abolished

 Effective 1 July 2017 

Anti-detriment provisions will be abolished from 1 July 2017, effectively removing the ability of superannuation funds to increase lump sum superannuation death benefits when paid to eligible beneficiaries.

The anti-detriment provisions allow a superannuation fund to claim a corresponding tax deduction where it is able to increase the amount of a person’s death benefit paid to certain eligible beneficiaries to compensate for the impact of tax on contributions.

Extend deductions for personal contributions

 Effective 1 July 2017 

Anyone eligible to make a personal super contribution will be able to claim an income tax deduction for these personal superannuation contributions up to their concessional cap. This effectively allows all individuals, regardless of their employment circumstances, to claim a deduction for their personal contributions up to the value of the concessional cap.

To access the tax deduction, individuals will need to lodge a notice of their intention to claim the deduction with their superannuation fund or retirement savings provider prior to lodging their tax return.

The ‘work test’ has not been removed as originally proposed. Anyone aged 65 or over must meet the work test to be able to make contributions.

Personal income tax reduction

 Effective 1 July 2016 

The Government will increase the 32.5 per cent personal income tax threshold from $80,000 to $87,000 from 1 July 2016.

 Taxable Income 
 Tax Payable * 
 $0 – $18,200  0%
 $18,201 – $37,000  19% over $18,200
 $37,001 – $87,000  $3,572 + 32.5% over $37,000
 $87,000 – $180,000  $19,822 + 37% over $87,000
 $180,000+  $54,232 + 45% over $180,000

Note: The Temporary Budget Repair Levy has not been extended beyond June 2017.

Age Pension – Increase in Assets Test thresholds (from Budget 2015)

 From 1 January 2017, the Assets Test thresholds will change to: 

 Lower Threshold for Full Pension 
 Upper Threshold for Part  Pension 
 Single, homeowner   $250,000  $547,000
 Single, non-homeowner   $450,000  $747,000
 Couple, homeowner   $375,000  $823,000
 Couple, non-homeowner   $575,000  $1,023,00

Commonwealth Seniors Health Care Card

The Government will ensure age pensioners who lose entitlement due to the above changes will be entitled to the Commonwealth Seniors Health Care Card (CSHC) from 1 January 2017.

The advice contained herein does not take into account your particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a financial product you should assess whether the advice is appropriate to your objectives, needs or financial situation. You should consider talking to a financial adviser before making a financial decision. No responsibility is taken for any person acting on the information provided. Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement  (PDS) relating to that product and consider the contents of the PDS before making a decision whether to acquire the product. This document has been prepared by Lifestyle Financial Services (ABN 85 065 161 391) who is a Corporate Representative of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. While care has been taken in the preparation of this document and the associated articles, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.