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Superannuation Reforms – The Good, The Bad And The Ugly

For many Australians superannuation seems to be an acquired taste; interest and investment builds with age. In our ever-growing café culture, we seem to discuss more fervently the most highly recommended place for a good coffee than the recommended strategies for our superannuation.

From 1 July 2017, the biggest changes to superannuation in 10 years are about to hit Australians.

These changes have been passed in Parliament. Some of the changes will be pleasantly welcomed like a good cappuccino from an experienced barista, whilst others will be hard to swallow like a bad roadhouse instant brew. Regardless of your stage in life it is important for ALL Australians to take note of these changes. You need to consider whether action is required before or soon after 1 July 2017. So, grab your beverage of choice and read on to see how the changes may affect you.

The Good

Extending The Spouse Tax-Offset Eligibility Criteria

CURRENT: Offset for contributions to spouse’s super if spouse earns under $13,800.

NEW: Offset for contributions to spouse’s super if spouse earns under $40,000.

The threshold to claim the $540 Spouse Contribution Tax Offset almost triples from $13,800 to $40,000 for the spouse’s income, allowing more people to put money into their partner’s superannuation and get a tax benefit. Higher earning spouses should think about building their spouse’s super balance to benefit from the tax bonuses and planning benefits that come from couples having two funds of similar size.

Action this after 1 July 2017

Low-Income Super Tax Offset

CURRENT: The ‘low-income super contribution’ refunds tax (up to $500) on concessional contributions for those earning $37,000 or less.

NEW: Introduction of the low-income super tax offset.

The Low Income Super Contribution is being replaced by a Low-Income Superannuation Tax Offset which is basically the same thing – a max $500 annual benefit for people earning up to $37,000 a year.

Action this after 1 July 2017

Catch-Up Concessional Contributions Implementation Deferred To 1 July 2018

CURRENT: Unused concessional contributions caps are lost.

NEW: Catch-up concessional contributions may be available for those with balances less than $500,000 just before the start of the financial year.

This is a great change and will help provide more flexibility and the opportunity to put more money into superannuation and receive a tax concession.

Action this after 1 July 2019

The Bad

Lower Annual Non-Concessional Cap Of $100,000 Or $300,000 Bring Forward Rule

CURRENT: You can contribute $180,000 of after-tax earnings to super each year (or, if eligible, $540,000 under bring forward rule).

NEW: Reduced after-tax contributions cap to $100,000 (or $300,000 under bring forward rule).

The Government has abandoned the $500,000 lifetime cap proposal and instead has moved to an annual after-tax contribution cap of $100,000 or $300,000, if you are eligible for the bring forward rule (under 65 at 1 July) subject to further restrictions as your super balance approaches $1.6 million. No contributions are allowed if your super balance is $1.6 million or more. This reduces the amount individuals can contribute to their superannuation each year. Individuals who want to take advantage of the higher caps on after-tax contributions should do so before the 30 June. Couples should consider making contributions into both of their accounts to use two non-concessional caps, again planning for the benefits that come when couples have two funds of similar size.

Action before 30 June 2017

Reduced Concessional Contributions Cap Of $25,000

CURRENT: Annual concessional (before-tax) contributions limit of $30,000 or $35,000 depending on age.

NEW: Reduction in the annual concessional (before–tax) contributions cap to $25,000.

From 1 July 2017, before-tax contributions to super (such as salary sacrifice and employer contributions) will be lowered to $25,000 a year for everyone. This limits the amount individuals can put into super before tax. If your cashflow allows, you may want to consider taking advantage of the higher cap by making larger concessional contributions before 30 June 2017.

Action before 30 June 2017

Transition To Retirement (TTR) Income Streams – Tax-Free Earnings Removed

CURRENT: Earnings on transition-to-retirement super pensions are tax free.

NEW: Removal of earnings tax exemption on transition-to-retirement super pensions. Earnings will be taxed at up to 15%.

Transition to retirement pensions no longer benefit from tax-free investment earnings. Individuals may need to reconsider their transitioning to retirement plans to make allowances for this change. The lower concessional cap reduces the effectiveness of TTR and salary sacrifice. If you are under 60, then TTR is of no real benefit, however it is still a valid strategy if over 60, just not as effective as before the changes.

Action before 30 June 2017

Removal Of Anti-Detriment Payments

CURRENT: Anti-detriment payments may apply on certain lump sum death benefits (generally a notional refund of contributions tax to be paid on death).

NEW: No anti-detriment payments on lump sum super death benefits (no refund of contributions tax paid on death).

Check your life insurance in super and estate planning to make sure that the rule changes don’t affect your strategies.

Action before 30 June 2017

The Ugly

$1.6 Million Transfer Balance Cap In Tax-Free Retirement Income Streams

CURRENT: No limit on funds moved into tax-free pension phase.

NEW: $1.6 million transfer balance cap on super transferred to the tax-free retirement income phase.

This is the worst of the changes, it seemingly penalises those individuals who have worked hard at building their superannuation. The change means that individuals will be limited to holding $1.6 million in tax-free retirement accounts. They will need to reduce their balance in one of two ways before 30 June 2017:

  1. Transfer the amount over $1.6 million back into a superannuation account
  2. Withdraw the “over” amount to outside superannuation

If the cap is breached then penalties will apply.

Action before 30 June 2017

Reduction Of Income Threshold For Additional Tax On Concessional Contributions

CURRENT: Additional 15% tax on certain concessional contributions if your adjusted income exceeds $300,000.

NEW: Additional 15% tax on certain concessional contributions, if your adjusted income exceeds $250,000.

The adjusted income threshold will be reduced from $300,000 to $250,000 meaning that more individuals will be hit with the additional 15% tax on concessional contributions.

Action before 30 June 2017

Time is of the essence. The 30th June is fast approaching. You should take the time to grab a coffee with your financial planner to discuss how the superannuation changes will affect you and how you can take advantage of the positive changes and minimise the impact of the negative changes. Superannuation should be a staple in our lives, not an acquired taste. It is what will support and enrich the lives of most Australians in their retirement. Superannuation is something we all need to think about regularly.

For more information please visit our superannuation page or contact Elliot to arrange an appointment.

Elliot Watson

Elliot Watson*

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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