2016/2017 Budget Changes - Superannuation

New Lifetime cap for non-concessional contributions

The Government has proposed the introduction of a lifetime non-concessional contributions cap of $500,000, effective from the Budget, i.e. 7:30pm AEST 3 May 2016. This new cap would replace the existing non-concessional cap of $180,000 per year (or $540,000 every 3 years under the ‘bring-forward’ rule for individuals aged under 65).

It would also include all non-concessional contributions made on or after 1 July 2007. If you have exceeded the cap prior to 3 May 2016, then you would be taken to have used up your lifetime cap, however, you would not be required to withdrawal the excess from your superannuation benefits. Consequentially, you will not be able to contribute any more non-concessional contributions into your Superannuation Fund and any excess will need to be notified to the ATO and must be withdrawn out of the Superannuation Fund. Any members that do not withdraw this excess amount will be subject to penalty tax.

Tax Free Superannuation balances to be capped at $1.6mil

A new $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free. Transfers in excess of this $1.6 million cap (including earnings on these excess transferred amounts) will be taxed in a similar way to the tax treatment that applies to excess non-concessional contributions.

Where you accumulate amounts in excess of $1.6 million, you will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%).

If you already are in the pension phase with balances above $1.6 million, you will be required to reduce your pension balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.

“Catch-up” of concessional superannuation contributions

From 1 July 2017, the government will allow individuals with a superannuation balance of less than $500,000 to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Only unused amounts accrued from 1 July 2017 can be carried forward, and can only be carried forward on a rolling basis for a period of five consecutive years.

Allowing people to carry forward their unused concessional cap provides them with the opportunity to ‘catch-up’ if they have the capacity and choose to do so.

Concessional contributions cap reduced to $25,000

Currently, the concessional contributions cap is $30,000 per year for individuals aged under 50, and $35,000 for those aged 50 or over. From 1 July 2017, this threshold will be reduced to $25,000 for all individuals, regardless of their age.

Tax deductions for personal superannuation contributions

From 1 July 2017, all individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions. This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap – partially self-employed, employees whose employers don’t offer salary sacrifice arrangements, etc.

This is a sensible move which means that it will no longer be necessary for individuals to pass a 10% test in order to be able to claim a deduction for personal superannuation contributions. Currently, an individual can only claim a deduction for personal contributions where less than 10% of their adjusted income for the year relates to employment activities. The 10% test can make it difficult for people who have started their own business to make deductible superannuation contributions where they also have part-time work.

Lowering the 30% tax on concessional contributions for higher income earners

At present, if your combined income and superannuation contributions is greater than $300,000, you would pay an additional contributions tax of 15% on concessional contributions. From 1 July 2017, the income threshold at which high income earners pay additional contributions tax will decrease from $300,000 to $250,000. Generally, an additional 15% tax will be payable on concessional contributions, to the extent that the threshold is exceeded.

Boosting the Super balance of your spouse

The low-income spouse superannuation tax offset income threshold will increase to $37,000 (from $10,800) from 1 July 2017.

The offset provides up to $540 per annum for the contributing spouse.