The recently delivered Federal budget contains a number of proposed changes to Superannuation provisions with potential effects both for accumulation funds, i.e. funds that are in receipt of further contributions from employers and/or personal contributions, and for pension funds from which beneficiaries currently draw a pension income.
It should be noted, however, that these proposed super changes are not set in stone as they depend on who wins the upcoming election scheduled for early July. Even if the current Government wins another term and attempts to implement the full proposed budget package, discussions over the next several weeks may lead to amendments, or, more likely, compromises may well need to be made as the Government attempts to get its package through a potentially hostile Senate.
For the moment, however, the following are the main proposed changes to Super as announced in the Federal Budget. As the general theme of the changes is to tighten the generosity of the existing Super system we start with the ‘negative’ changes in this sense
- The concessional contributions to Super will be reduced to $25,000 per annum, from the current $30,000, or $35,000 for those above the age of 50.
- The non-concessional contributions will be subject to a lifetime cap of $500,000 and this will be backdated to count all such contributions as from 2007.
- The tax exemption for earnings supporting ‘transition to retirement’ income streams will be removed, i.e. such earnings will henceforth be taxed for anyone below the age of 60 (for those at 60 or above earnings, as well as all pension drawings will continue to be tax exempt).
- The threshold for high income earners who have to pay a surcharge of an extra 15% tax on contributions will be lowered from $300,000 to $250,000.
- There will be a limit of $1.6 million in the amount that an individual can transfer from the accumulation phase to the retirement phase, meaning that the individual with more than $1.6 million in Super would need to either retain the excess in the accumulation phase or withdraw it out of Super altogether.
- The provisions for so called anti-detriment payments (rarely applicable in the past) will be abolished.
Now for the more ‘positive’ changes
- A low income Super tax offset (LISTO) will be introduced to reduce the effective tax rates on concessional contributions for individuals with incomes under $37,000.
- Those with Super balances under $500,000 will be able to rollover any unused concessional contributions from previous years.
- The work test rules applicable to those between the ages of 64 and 75 will be abolished which means that regardless of employment status anyone in the above age bracket can make contributions to Super and, where relevant, claim such contributions as tax deductible.
- Other retirement products, such as deferred lifetime annuities, will gain tax exempt status for their earnings to match the status of earnings from Super in pension mode.
The above provisions are scheduled to apply from 1 July, 2017, except the non-concessional cap provision backdated to 2007 as indicated above.
Please note that the above summary listing does not give full details and obviously does not provide any hints in regard to strategies that affected clients might be able to employ in order to minimize any negative effects in their particular circumstances.
Accordingly, please feel free to contact us for further clarification and discussion on exactly how you might be affected and if so, what steps to take to derive as favourable an outcome as possible for you.