Superannuation is your means to live comfortably when you choose to stop working.
Many changes will soon be made to superannuation in Australia, having a significant impact on all super holders, both young and old. It’s important to consider how these changes will impact upon your super, and if you need to change your current super arrangements.
Below are some of the changes, and the opportunities they can provide for you.
Introduction of a transfer balance cap
A $1.6 million cap has been introduced on the amount that can be transferred to super in retirement phase when earnings are tax-free. Additional savings can remain in an accumulation account (where earnings are taxed at 15 per cent) or remain outside super, coming into effect from 1 July 2017 and indexed in following years. Retired people with retirement phase balances below $1.7 million on 30 June 2017 will have 6 months from 1 July 2017 to bring their balances under $1.6 million.
Concessional superannuation contributions cap reduced
The annual concessional contributions cap has been reduced to $25,000 (from $30,000 for those aged under 49 at the end of the previous financial year and $35,000 otherwise). Comes into effect from 1 July 2017.
Concessional superannuation contributions tax threshold reduced
The threshold at which high-income earners pay Division 293 tax on their concessionally taxed contributions to superannuation has been reduced from $300,000 to $250,000. Comes into effect from 1 July 2017.
Non-concessional contributions cap reduced and criteria introduced
Non-concessional contributions rules have been made, and come into effect from 1 July. The annual non-concessional contributions cap has been reduced from $180,000 to $100,000. In addition, criteria for an individual to be eligible for the non-concessional contributions cap has been introduced and other minor amendments to the July 2017.
Low Income Superannuation Tax Offset to replace the Low Income Super Contribution
The Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution from 1 July 2017. The LISTO refunds up to $500 of the tax paid on concessional super contributions for low-income earners with a taxable income of up to $37,000.
Greater deductions of personal contributions
The requirement that an individual must earn less than 10 per cent of their income from employment to be able to deduct a personal contribution to their super to make it a concessional contribution has been removed, applied from the 2017-18 income year.
Allowing ‘catch-up’ concessional contributions
Individuals whose superannuation balance at the end of the previous financial year is less than $500,000 will be able to carry forward unused concessional cap amounts from the previous five years. Applies to working out an individual’s concessional contributions cap from the 2019-20 financial year onwards.
More tax offsets for spouse contributions
Increases in the amount of income an individual’s spouse can earn before the individual stops being eligible for a tax offset for contributions made on behalf of their spouse. The income your spouse can earn has been increased from $10,800 to $40,000, and will apply from the 2017-18 financial year.
Changes to earnings tax exemptions
The earnings tax exemption has been extended to new lifetime products (including deferred products and group-self annuities). The earnings tax exemption for transition to retirement income streams has been removed. An integrity measure that will apply to self-managed super funds and other small funds has been introduced. These changes will apply from the 2017-18 income year.
Abolishing the anti-detriment rule
The anti-detriment provision which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants will be removed from 1 July 2017.
Changes in Transition to Retirement income streams
Income from investments in transition to retirement income streams will no longer be exempt and will be taxed at 15%, significantly impacting individuals with Transition To Retirement who are aged less than 60, as they will also be paying tax on income payments, cancelling out any tax benefit for some. This will also be beneficial for those who wish to reduce their working hours while maintaining the same level of cash flow.
Catch-up concessional contributions
Individuals can carry forward unused concessional cap amounts from the previous five years if their super balance was less than $500,000 at the end of the previous financial year. This will enable individuals who have taken a break from the workforce, or have switched from part to full time to make catch-up contributions
Additional tax offsets for spouse contributions
The amount that an individual’s spouse may earn before that individual is no longer eligible for a tax offset has been increased, from a threshold of $13,800 to $40,000. So it may be an idea to look at making a Spouse Contribution.
How can Blenkhorn Financial Planning help?
Individuals unsure or concerned about any of these changes, or how they will affect you, get in touch with us.