Search
  • Peter Vasta

Superannuation update – what is changing from July 2017


In late November 2016, the Australian parliament made significant changes to the superannuation laws. These have now received Royal Assent. Below is a summary of the key changes to superannuation that may affect you from 1 July 2017.

  • Cut in annual concessional (before-tax) contributions cap to $25,000

  • Cut in annual non-concessional (after-tax) contributions cap to $100,000

  • Introduction of a $1.6 million transfer balance cap for retirement

  • Capital gains tax relief and the 1.6m cap

  • Removal of tax exemption for transition-to-retirement pensions (TRIPs)

  • Introduction of catch-up concessional contributions over 5-year period (from July 2018)

  • 30% tax on concessional (before-tax) super contributions for those earning over $250,000

  • Greater access to claiming Superannuation Contributions

  • Work test for over-65s to remain

Cut in annual concessional (before-tax) contributions cap to $25,000

From 1 July 2017, the general concessional contributions cap will again be lowered to $25,000 from $30,000 (and $35,000 for the over-50s cap).

Cut in annual non-concessional (after-tax) contributions cap to $100,000

Under the current rules, an individual under the age of 65 can make annual non concessional contributions of up to $180,000 (or up to $540,000 over a 3-year period using the bring forward rule.) From 1 July 2017, these limits will be reduced to $100,000 ($300,000 over a 3-year period.) Note you can only make non-concessional contributions if you have less than $1.6 million in your super account.

Introduction of a $1.6 million transfer balance cap

Effective from 1 July 2017, “a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.” The cap will be applied to “both current retirees and to individuals yet to enter their retirement phase.” This cap will be indexed in $100,000 increments, in line with increases in the consumer price index (rate of inflation). The financial consequence for current retirees is, if they have more than $1.6 million in pension phase, they will need to withdraw the excess balance OR revert the excess amount to accumulation phase (which is then subject to 15% earning tax), by July 2017. Subsequent earnings on this pension balance, from July 2017, will not be required to be withdrawn.

Capital Gains tax and the $1.6m transfer balance cap

If you move the excess funds (above $1.6 million) into the accumulation phase of a super fund, and you accumulate capital gains before 1 July 2017 on that transfer, you may be eligible for capital gains tax relief for that gain. The CGT relief allows complying super funds that CHOOSE TO APPLY the relief to reset the cost base on assets that are reallocated or re-proportioned from the retirement phase to the accumulation phase before 1 July 2017. The relief allows the super fund to deem the transferred asset has been sold and repurchased at current market value as at 30 June 2017. The deemed sale triggers a capital gains tax event, which means the cost base for the asset is reset at current market value. The implications of this deemed transaction is that when the asset is sold some time in the future, after 1 July 2017, only capital gains arising from 1 July 2017, will be taxable.

Since the asset is deemed as a new purchase, the eligibility for the 33% CGT discount restarts, and would not be available until the super fund holds the asset for a further 12 months. Important: Eligibility for CGT relief on transferred pension assets, only applies to assets held during pre-commencement period (of the legislation, that is, 9 November 2016) and up to 30 June 2017, at least. A super fund must actively apply for the CGT relief using an approved form, and submit it to the ATO by the lodgement due date for the super fund’s 2016/2017 income tax return. A super fund can choose not to apply for CGT relief, but if a super fund does apply, the application cannot be revoked.

Removal of tax exemption for transition-to-retirement pensions (TRIPs)

From 1 July 2017, the parliament has removed the tax-exempt status of super fund earnings supporting a transition-to-retirement pension (TRIP).

Introduction of catch-up concessional contributions over 5-year period (from July 2018)

From 1 July 2018, individuals can make catch-up concessional contributions.

How it works is that unused portions of the concessional cap each year can be carried forward on a rolling basis for up to 5 years, for the annual caps applicable from July 2018, but only if a members account balance is less than $500,000.

30% tax on super contributions for high Income earners

From 1 July 2017, taxpayers with adjusted taxable income of $250,000 or more will be hit with extra contributions tax, which means all concessional contributions will be hit with 30% tax rather than 15% tax.

Greater access to claiming Superannuation Contributions

From 1 July 2017, all individuals under the age of 75 will be permitted to claim tax deductions for personal super contributions (voluntary concessional contributions). This measure is designed to assist an employee where their employer won’t allow salary sacrifice contributions, or to help individuals who are both self-employed and employed, but fail to meet the current 10% income test.

Work test for over-65s to remain

The work test will now remain in place and works as follows: if a person aged 65 years or over wishes to make a super contribution, then he or she must work 40 hours in a 30-day period in the financial year in which he or she plans to make the super contribution.

#Superannuation #FederalBudget2016 #Retirees #Worktest #Concessionalcontributions #Nonconcessionalcontributions #16mtransferbalancecap

173 views

© 2019 Seed Accounting