May 2016 Federal Budget, updated February 2017 – key implications for your super
AvSuper summarises the likely impact of the 2016 Federal Budget on your super and your retirement.
As always, we will keep members informed as things progress. If you have concerns about how these Budget changes may affect you, you can call us with your questions, or make an appointment with one of our professional Member Advice Consultants to obtain advice on your specific situation.
Michelle Wade Chief Executive Officer
Whilst more than a dozen changes were proposed for super, we believe the key changes for our members are:
Reductions on the amount of money you can contribute to super, especially at concessional tax rates
Introduction of a “cap” on the amount of money you can transfer to an income stream (pension) account at retirement
Lowering the income threshold for high income earners (from $300,000 pa to $250,000 pa) where the contribution tax rate changes from 15% to 30%
Removal of the “work test” for older members
Changes to contribution limits
The concessional contribution cap will be set at $25,000 pa from 1 July 2017, for all age groups, reducing from its current level of $30,000 pa ($35,000 for those aged over 50).
However, from 1 July 2018 (not 2017 as was originally proposed in the Budget), individuals will be able to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. This “catch-up” measure will be limited to members with account balances less than $500,000 and unused portions of caps after 1 July 2018 will be able to be carried forward on a rolling basis for a period of five consecutive years.
The current non-concessional contribution lifetime cap proposal was abolished. Instead, there will be an annual $100,000 non-concessional contributions cap from 1 July 2017. This will only apply to members with a super balance under $1.6 million.
Defined Benefit members will also be captured by these changes.
The reduction in contribution caps will be very disappointing for many AvSuper members, especially those close to retirement who now have the financial resources to top up their super. While the proposed ability to make “catch up” contributions will be helpful for some members, especially women and others with broken employment histories, we consider that financially planning for the impact of changing contribution caps for AvSuper members who are fast approaching retirement will generally be more complex.
We encourage members who are concerned to make an advice appointment with one of our Member Advice Consultants to better understand the likely effects of changes on your individual situation.
New $1.6 million Cap on income stream (pension) accounts
The Government is introducing a $1.6 million cap on the total amount of superannuation savings that can be transferred to tax free income stream (pension) accounts (ie one or more accounts count towards the cap), from 1 July 2017. Superannuation savings above the cap can be retained in the superannuation system (for example in an accumulation account) but will be subject to a 15% tax on investment earnings. Eligible members who have reached their preservation age will also be able to withdraw any excess above the cap. Withdrawn amounts will remain tax-free for those aged over 60.
These changes will also affect members who have more than $1.6 million in tax-free income stream accounts as at 1 July 2017, and the excess over the cap will need to be withdrawn or transferred to an accumulation account by July 2017 (or 31 December 2017 if the total balance is under $1.7 million). Earnings after 1 July 2017 will not have to be withdrawn, even if they put your balance over the cap.
This is a significant change and one we are disappointed with, especially that the cap is set so low – much of the superannuation industry had agreed that a $2.5 million cap would be more appropriate, should it be required by Government. Individuals who think they may be affected by this new measure, or are close to retirement, should consider making an advice appointment with one of our Member Advice Consultants to assist in understanding the likely impact.
As it has become law, we will contact members who are likely to be affected ahead of the final commencement date, to provide time for any changes to be made.
Changes to high income earners contribution tax
From 1 July 2017, the Government will reduce the relevant income threshold for paying 30% contributions tax (also known as the Division 293 tax) on concessional contributions from $300,000 to $250,000. Members with incomes below the threshold will remain subject to 15% contributions tax on concessional contributions.
Removal of the “work test” for those aged 65 to 74
The Government will NOT remove the “work test” which currently limits the ability of individuals aged 65 to 74 to make voluntary (non concessional) super contributions without being able to demonstrate a minimum number of working hours.
Other superannuation related Budget measures
Tax changes to Transition to Retirement (TTR) income streams
Effective from 1 July 2017, the Government will abolish the current exemption from tax on investment earnings for assets in a TTR income strategy. Investment earnings in a TTR income strategy will become subject to 15% tax, as for superannuation savings in accumulation accounts.
If you currently have a TTR or are approaching retirement and considering a TTR, it is important to reassess your situation for these changes – our Member Advice Consultants can explain the changes and discuss your best strategy beyond July 2017.
Anti-detriment deductions abolished
The tax deduction available to super funds (like AvSuper) which pay an “anti-detriment payment” as part of a death benefit paid to certain eligible beneficiaries will be removed from 1 July 2017. That is, anti-detriment will not be paid on death benefits for members who die after 30 June 2017, nor at all from 1 July 2019.
Low income superannuation tax offset (LISTO)
The Government will rename the Low Income Super Contribution (LISC) to LISTO, but it will continue to effectively refund the contribution tax paid by low income earners (those with taxable incomes less than $37,000pa) on their concessional contributions up to an annual cap of $500.
Extension of low income spouse contribution tax offset
The Government will raise the income threshold for the low income spouse from $10,800 to $37,000, making it possible for more spouses to be eligible. This arrangement provides a tax offset of 18% of contributions made by the contributing spouse, up to a maximum offset of $540 pa.
As always, we will keep members informed about any changes as things develop or become law, so be sure to watch our website and read our Annual Report.
Email: firstname.lastname@example.org | Local call: 1300 128 751 | www.avsuper.com.au