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Superannuation and the 2016-2017 Budget

As you would be aware the budget was handed down on 3 May 2016.  The potential impacts to superannuation are unfortunately significant and harsher than was alluded to prior to budget night.

What does it mean for your right now?

The only change that is in place from 3 May 2016 is the introduction of a life time limit on non-concessional (after tax) contributions which is now $500,000 per person.  This test backdates to contributions made from 1 July 2007.  This replaces the $180,000 limit per year per person and the bring forward option of $540,000.

This is a significant reduction of what can be contributed into superannuation and may impact your future plans for contributions.  Essentially you have to know your contribution history from 1 July 2007 before placing any further non-concessional contributions into super.  If you put in over the limit from now you will have to withdraw the amounts or face a penalty tax.

Superannuation related changes from 1 July 2017:

  1. Lowering the concessional contribution cap to $25,000 for all individuals.  The current $30,000 if under 50 and $35,000 if over 50 remain for 15-16 and 16-17 years
  1. Introducing a $1.6 million superannuation transfer balance cap.  This is the big change that will impact everyone and their retirement plans. From 1 July 2017 there will be a limit as to how much can be in placed into a pension of $1.6mil .  If you have more than $1.6mil in your name in pension phase then amount exceeding the cap will need to be rolled back into accumulation phase where earnings are taxed at 15%.The concessional rate of 15% is still attractive for investment purposes as compared to marginal rates so we don’t see too many people taking the excess above the $1.6mil out of super.
  1. Transition to retirement pensions (TRIS) – tax concessions to be reduced.  The proposal is to remove the tax exempt status of earnings supporting a TRIS, instead they will be taxed at 15%.  This will apply to all TRISs from 1 July 2017 regardless of when commenced.  This is another significant change that will require a review of any TRIS strategies.
  1. Allowing catch-up concessional contributions.  Proposed to allow people with balances under $500,000 to carry forward unused concessional caps on a rolling 5-year basis to help with broken work patterns.
  1. Tax deductions for personal superannuation contributions.  This one is beneficial! It will allow anyone under age 75 to claim a personal tax deduction for super contributions they make.  You no longer need to be primarily self employed to access this.
  1. Work test removed for those aged 65-74 – the work test will no longer apply to allow the fund to accept contributions made for you or your spouse
  1. Lowering the threshold of Div 293 tax – The income test limit for this tax has been lowered from $300,000 to $250,000 where a further 15c is charged on concessional contributions
  1. Introducing a Low Income Superannuation Tax Offset (LISTO).  This relates to people earning below $37,000 where a non refundable tax offset will be provided to super funds based on tax paid on concessional contributions up to a cap of $500.

There are further proposed changes and details in the paper prepared by SMSF Association if you wish to read more.

Other measures that may affect you personally from 1 July 2016:

  1. Personal income tax relief by changing the threshold for the 32.5c tax rate to apply from $87,000 rather than the current $80,000
  2. 10 year plan to reduce the company tax rate to 25%.  The rate will be reduce to 27.5% from 1 July 2016 where turnover less than $10mil (increased from $2mil)
  3. Increase unincorporated small business discount over 10 years from 5% to 16%.  5% applies from 1 July 2015, 8% will apply from 1 July 2016 for eight years.  The current cap of $1,000 per individual per year will be retained
  4. Medicare levy low income thresholds will be increased

The most important action from today is to review your contribution plans and ensure you get appropriate advice before making new contributions.  All the other proposed changes to superannuation will not commence until 1 July 2017 so there is no need for immediate action at this time.

Please do not hesitate to contact us here at Greenlight if you have further questions in relation to the changes.

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