The Australian Government Senate has passed the proposed legislation which gives effect to the much discussed superannuation reforms.
Summary of changes to superannuation
The legislation contains the measures originally announced in the 2016/17 Federal Budget with some changes. The majority of measures commence from 1 July 2017.
The key measures include the following which we’ve separated into two categories: (1) those paying money into super, and (2) those who are either retired or approaching retirement.
Putting money into super:
- Reducing the concessional contributions cap to $25,000 for all taxpayers. This includes employer contributions and any monies you may salary sacrifice to super pre-tax.
- Great news for people with broken work patterns (i.e. especially stay at home mum’s and dad’s). Introducing a concessional contributions ‘catch-up’ opportunity for those with total super balances of less than $500,000 from 1 July 2018. This will allow you to increase your contributions in the current year, above the maximum, by allocating to prior years.
- Allowing a tax deduction for personal contributions. This previously not available to majority of employees. What does this mean? As an employee, you basically had to predict what your income and expenses will be for the year. Then, calculate the amount each pay that you would salary sacrifice into super. You could not make a personal contribution from your bank account at the end of the year if you had spare cash and claim a tax deduction. From 1 July 2017 you will now be able to. This will help people with income that may vary due to shift work, bonuses, casual employees, or whose expenses may vary (i.e. with kids).
- Reducing the post-tax contribution cap to $100,000 p.a. (or $300,000 over 3 years by bringing forward 2 future years).
- Introducing a low income superannuation tax offset. To ensure people who are earning less than $37,000 and are paying less than 15% tax, are not disadvantaged by putting money into super.
- Increasing the annual income threshold from $10,800 to $37,000 for eligibility for the spouse contribution tax offset. A tax payer may contribute money to their spouses super and receive a tax 0ffset for doing so. The maximum offset is $540 which is obtained by contributing $3,000 to your spouses super fund.
- Lowering the income threshold for Division 293 tax to $250,000. What is this? If you earn over $250,000 you will pay 30% contribution tax on fund paid into super from your employer or by salary sacrifice, rather than 15%.
Taking money out of super:
- Introducing a $1.6 million cap which limits the amount that can be transferred to a superannuation pension, where earnings are tax-free. Amounts over this in super will need to remain in the accumulation fund. This is estimated to impact 2% of the population. This measure will also apply to death benefits paid to a beneficiary (i.e. from husband to wife, as an income stream).
- Removing 0% tax on investment earnings for transition to retirement pensions. This returns to 15% as per the accumulation fund tax rate.
The importance of getting advice
What you do today with your superannuation will have an impact on your retirement. The tax free environment of superannuation pensions are still a very attractive way to structure your retirement wealth. Making the most of your ability to contribute larger lump sums into your superannuation prior to 30th June 2017 could significantly increase your ability to achieve a largely tax free retirement.
Please call our office on 07 3354 9000 to see how these changes impact on your retirement.