Budget 2016: Superannuation
Wednesday 4 May 2016
The Federal Government announced some major changes to superannuation in the budget which was handed down last night.
Should you have any questions on how these changes may affect you, please call one of our Superannuation Partners, Matt Cherry or Alison Palmblad on 07 4659 4666.
Further information is provided below on each of the following changes:
- Reduction in concessional contributions cap
- Tax deductions for personal superannuation contributions
- Allowing catch-up concessional contributions
- More tax on contributions for more high earners
- Lifetime cap for non-concessional superannuation contributions introduced
- Extending the spouse contributions tax offset
- Low Income Superannuation Tax Offset (LISTO)
- Contribution rules for those aged 65 to 74
Reduction in concessional contributions cap
From 1 July 2017, the concessional contributions cap will reduce to $25,000 per year. Currently the concessional contributions cap is $30,000 per year if under age 50 and $35,000 per year if aged 50 and over. From 1 July 2017, notional (estimated) and actual employer contributions for members of unfunded defined benefit schemes and constitutionally protected funds will be included in the concessional contributions cap.
Tax deductions for personal superannuation contributions
From 1 July 2017, all individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions. In doing so, all individuals will, regardless of their employment circumstances, be able to make superannuation contributions up to the concessional cap. These amounts will count towards the concessional contributions cap and will be subject to contributions tax. Similar to the current arrangements to claim the tax deduction, individuals will need to lodge a notice of their intention to claim the deduction before they lodge their income tax return for the relevant year.
Allowing catch-up concessional contributions
From 1 July 2017, individuals with superannuation balances of $500,000 or less will be able to accrue unused concessional contribution cap amounts. Unused amounts can be carried forward on a rolling basis for a period of five years. Amounts carried forward that have not been used after five years will expire. Carrying forward unused concessional contributions cap will make it easier for individuals with varying capacity to make contributions to superannuation.
More tax on contributions for more high earners
From 1 July 2017, the ‘Division 293’ threshold will reduce from $300,000 to $250,000 per year meaning individuals earning over this amount will have to pay an additional 15% tax on concessional contributions. The existing administration process for levying this tax will remain unchanged, but a larger number of people will be drawn into it. Individuals will still have the ability to pay the additional 15% tax liability from their superannuation fund if they choose to.
Lifetime cap for non-concessional superannuation contributions introduced
From 7:30 pm (AEST) on 3 May 2016, a $500,000 lifetime cap on non-concessional contributions will be introduced. The cap will take into consideration all non-concessional contributions made since 1 July 2007. In addition the cap will apply to individuals aged up to 75, and will be indexed in $50,000 increments in line with average weekly ordinary time earnings. In cases where the individual exceeded the cap prior to commencement of the new rules, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system. Where the excess occurs after commencement, they will be notified by the Australian Tax Office to withdraw the excess from their superannuation account, or be subject to the penalty arrangements. The lifetime non-concessional cap will replace the existing non-concessional contributions cap which allows an individual to contribute up to $180,000 per year (or $540,000 under the bring-forward provision for those aged under 65).
Extending the spouse contributions tax offset
From 1 July 2017, the 18% tax offset of up to $540 will be available for any individual contributing to a recipient spouse’s superannuation whose income is up to $37,000. Currently, the 18% tax offset of up to $540 is available for any individual contributing to a recipient spouse whose income is up to $10,800. The tax offset will be calculated as 18% of the lesser of: $3,000 reduced by every dollar over $37,000 or the amount of spouse contributions.
Low Income Superannuation Tax Offset (LISTO)
From 1 July 2017, a Low Income Superannuation Tax Offset (LISTO) will be introduced to replace the Low Income Superannuation Contribution (LISC). The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.
Contribution rules for those aged 65 to 74
Currently, individuals aged 65 to 74 must meet a work test to be eligible to make contributions to superannuation. From 1 July 2017 this requirement will be removed, increasing the ability of older Australians to contribute to their superannuation. From 1 July 2017, individuals will also be able to make contributions to a spouse up to age 74. Currently, individuals can make contributions to a spouse up to age 69. From 1 July 2017, individuals will no longer have to satisfy a work test to receive contributions from their spouse.