Australian Superannuation Changes on 1 July 2017

The Australian Government is set to impose the most substantial changes to superannuation since 2007, following the passing of superannuation reform legislation in November 2016. 

Let’s take a look at the changes and their implications:

 

Reduction to Concessional Caps

From 1 July 2017, the government will reduce Concessional Caps to $25,000 p.a. for all individuals regardless of their age. Concessional Caps made prior to 1 July 2017 are capped at $35,000 for those who were 49 or over on 30 June 2016 and up to $30,000 for those under age 49. 

 

The Reduced Income Threshold for Division 293 Tax

From 1 July 2017, the Division 293 threshold is reduced to $250,000 – lowered from $300,000. For those over this threshold, addition 15% tax will be levied on Concessional Contributions. 

“Income” for this purpose includes:

• taxable income
• reportable fringe benefits
• total net investment losses, and

• low tax contributions

Changes to Non-Concessional Caps

From 1 July 2017, the government will lower the annual Non-Concessional Contributions Cap from $180,000 to $100,000. They will also introduce a new constraint so individuals with a balance of $1.6 million or more (as of 30 June 2016) will no longer be eligible to make Non-Concessional Contributions. 

Eligible individuals will be able to access a 3 year bring forward of up to $300,000 dependant on your members’ balance. You may be able to utilise the existing bring forward rule (of up to $540,000) before 1 July 2017 regardless of your members’ balance. 

 

Changes to Transition to Retirement Income Streams

From 1 July 2017, earnings and gains from investments held in a Transition to Retirement (TTR) pension won’t be exempt and will be taxed at 15%. This change applies to new and existing TTR income streams regardless of the date of commencement. 

Additionally, superannuation income streams will no longer be allowed to treat certain superannuation income stream payments as lump sums for tax purposes.

 

The Work Test

Currently, if you are aged 65 to74 years and want to contribute to your super, then the Work Test applies to you. To be eligible, you must have worked for at least 40 hours over 30 consecutive days in the financial year you wish to make a contribution. This proposed change is no longer going ahead and the work test will remain as is. 

$1.6M Pension Transfer Balance Cap

One of the most significant changes will be the $1.6 million limit on how much money can be put into tax-free super pensions. 

If you are in excess of the transfer balance cap on 1 July, you will need to either:

• transfer the excess amount to the accumulation phase, or
• withdraw the excess amount from your super fund. 

The $1.6 limit is referred to as your transfer balance cap.

 

Capital Gains Tax Relief

There will be a CGT relief where assets are transferred back to accumulation phase to comply with the transfer balance cap. The relief may allow funds to reset the cost base of assets transferred from pension to accumulation. 

You should speak to your adviser to assess whether you need to make adjustments to your superannuation prior to these changes that are effective from 1 July 2017. These changes are complex to navigate and there is a window to maximise your opportunities but also to minimise any negative impact on your situation. 

The above is general information and hasn’t taken into consideration your specific financial situation. For more information on what these superannuation changes will mean to you, contact us at Altus Financial.