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Superannuation has been a strong focus of this year’s Federal Budget.  A raft of changes have been announced - some which will impact on the ability of Australians to save for their retirement, while other measures will provide incentives and opportunities for lower income earners to bolster their superannuation savings.  The following measures were announced as part of the Government’s superannuation reform package to improve the sustainability, flexibility and integrity of the super system.

Reduced concessional contribution caps

With effect from 1 July 2017, concessional contribution caps, i.e. for contributions which come from pre-tax income, are to be reduced to $25,000 per annum (currently set at $30,000 for those individuals aged under 50 and $35,000 for those over 50 years of age), limiting the ability of people to grow their retirement savings.

However, Australians will now be given the opportunity to make additional concessional contributions where they have not reached concessional contribution caps in prior years. This measure, which will apply from 1 July 2017, will only be available to those individuals with super balances less than $500,000, and will enable a carry forward of ‘unused cap amounts’ to allow a catch up on contributions. This measure is intended to allow people with interrupted work patterns (for example women or carers) to accumulate superannuation balances commensurate with those who do not take breaks from the workforce. 

Removal of 10 per cent rule for deductible personal contributions

From 1 July 2017, Australians up to age 75 will have the ability to claim a deduction for personal superannuation contributions regardless of their work circumstances. This will negate the need for salary sacrificing arrangements with employers and enable people to claim a deduction to top up their super contributions up to the new concessional contribution cap.

Decreased threshold for Division 293 tax

From 1 July 2017, the Government will be reducing the threshold at which high income earners pay an additional 15 per cent tax (commonly referred to as “Division 293 tax”) on their concessional superannuation contributions from $300,000 to $250,000.

Non-concessional (after-tax) contributions

A lifetime cap will be applied to non-concessional contributions.  The new $500,000 lifetime cap takes effect immediately and applies to all non-concessional contributions made on or after 1 July 2007.  However, amounts made before 7.30pm on 3 May 2016 (Budget night) cannot result in an excess.  This new lifetime cap will replace the current non-concessional annual cap of $180,000 (six times the concessional contributions cap) as well as the three-year bring forward provisions that enabled contributions up to $540,000 to be made. 

Work test for contributions

From 1 July 2017, the age at which Australians will have to satisfy a work test in order that they are able to make superannuation contributions will be increased from 65 to 74 years of age.  This will facilitate people being able to improve their retirement savings for a longer period of time regardless of their working arrangements.

Contributions for low income spouses

The ability to claim a tax offset of up to $540 per annum for spouse contributions has become more accessible with the income threshold for spouses increased from $10,800 to $37,000.  This measure is intended to apply from 1 July 2017.

$1.6 million cap on retirement phase

The Government has announced it will restrict the amount of a person’s superannuation balance that can be transferred into pension phase, which attracts greater concessional tax treatment, to $1.6 million.  While this does not restrict people’s ability to save in superannuation, balances above this amount will still be deemed to be in accumulation phase attracting the normal 15 per cent tax rate on earnings.  This measure will take effect from 1 July 2017.  Those already in ‘pension’ phase will be expected to reduce their retirement balance to $1.6 million by 1 July 2017, with the option of returning the excess amounts back to accumulation.

Low Income Superannuation Tax Offset (LISTO)

Effectively replacing the Low Income Super Contributions (LISC) scheme, from 1 July 2017, low income earners will receive a tax offset (to their super fund) to compensate for tax paid on their super contributions.  Up to a $500 non-refundable tax offset will be paid to superannuation funds for those members for whom concessional contributions have been made, with adjusted taxable incomes of less than $37,000.  This avoids the situation where low income earners were paying more tax on their super contributions than if they received this money as direct salary or wages.

Transition to retirement income streams

Although it is not proposed to abolish Transition to Retirement Income Streams (TRISs), the Government has announced that earnings from assets supporting these benefits will no longer be eligible for tax exemptions.  It appears these income streams will remain available to those who have reached preservation age (currently 56 years) regardless of any changes to their work circumstances, however the taxation of the earnings within the fund will be the same as if the fund was in accumulation phase (15 per cent).  This measure will apply to all TRISs from 1 July 2017.

Income streams taxed as lump sums

The Government has announced that from 1 July 2017, it will remove rules that currently allow an election to be made for certain income stream payments to be taxed as lump sums.

Anti-detriment payments to be abolished

As predicted in the lead up to the Budget, the Government has announced that it will repeal the anti-detriment payment rules for payments after 30 June 2017. 

These provisions enabled a refund of a member’s lifetime super contributions tax payments to be paid to their dependants as part of a death benefit payment. Considered to be inconsistently applied and difficult to administer, this will potentially diminish the amount of a death benefit payment to dependants.

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Naree Brooks

Partner, Private Clients, PwC Australia

Tel: +61 (3) 8603 1200

Peter Kennedy

Director, PwC Australia

Tel: +61 414 867 407

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