Life-time limit on Non-concessional Contributions
Non-concessional contributions are contributions for which no tax deduction is claimed. Prior to Budget night these contributions were limited to $180,000 per year (or $540,000 every three years for individuals aged under 65 utilising the "bring forward" rule).
Effective from 7.30pm (AEST) on 3 May 2016, a lifetime non-concessional contributions limit of $500,000 is to be introduced. To ensure maximum effectiveness, this limit will take into account all non-concessional contributions made on or after 1 July 2007. Accordingly, extreme care should be taken in respect of any future non-concessional contributions.
Pensions - $1.6m transfer balance cap
Currently income earned by a superannuation fund in pension phase is tax free.
From 1 July 2017 a cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free pension phase will be introduced. Subsequent earnings on these balances will not be restricted.
Where an individual accumulates amounts in excess of $1.6m, they will be able to maintain the excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%). Members already in the pension phase with balances above $1.6m will be required to reduce their pension balance to $1.6m by 1 July 2017 with the excess being held in an accumulation phase account.
A tax on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.
Commensurate treatment for members of defined benefits schemes will be achieved through changes to the tax arrangements for pension amounts over $100,000 from 1 July 2017. Consultation will be undertaken on the implementation of this measure for members of both accumulation and defined benefits schemes.
Concessional Contributions – limits
Contributions to super that are tax deductible up to certain limits are known as "concessional contributions". Currently the annual limits are:
- $30,000 for those aged under 50
- $35,000 for those aged 50 and over
From 1 July 2017, there will be one limit of $25,000, regardless of an individual's age.
'Catch-up' Concessional contributions
From 1 July 2017 those individuals with superannuation balances of less than $500,000 will be permitted to make additional concessional contributions, if they have not exhausted their concessional contribution limit in prior income years.
The unused amounts will be carried forward on a rolling basis for a period of five consecutive years. Only unused amounts accrued from 1 July 2017 can be carried forward.
Concessional Contributions – greater access to tax deductions
Currently the rules for people with employment income to claim tax deductions for personal superannuation contributions are very restrictive, for example satisfying the "10% test".
From 1 July 2017 all individuals regardless of their employment circumstances will be able to claim a tax deduction for personal concessional contributions.
Concessional Contributions – reduction in the 'Division 293 tax' income threshold
Division 293 imposes an additional 15% tax on concessional contributions (to bring the total contributions tax to 30%) for 'high income earners'.
From 1 July 2017 the income threshold will be reduced from $300,000 to $250,000.
Making contributions – persons aged 65-74
Currently for persons aged between 65 and 74 to be eligible to make personal contributions or to receive additional employer contributions (including those made under a salary sacrifice arrangement) a work test must be satisfied. This requires the person to be gainfully employed on a full or part-time basis for at least 40 hours in 30 consecutive days in the financial year.
From 1 July 2017 they will no longer have to satisfy the work test in respect of their own contributions or contributions from their spouse.
Low Income Super Offset
From 1 July 2017 a low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners.
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.
Low Income Spouse Offset
From 1 July 2017 the income threshold for the receiving spouse of the low income spouse tax offset will be increased from $10,800 to $37,000.
Pensions – Transition to Retirement Income Streams
Transition to Retirement Income Streams are income streams (pensions) paid to members who have reached their preservation age (currently 56) but who have not yet retired.
From 1 July 2017 the tax free status of income earned on assets supporting Transition to Retirement Income Streams will be removed.
Additionally the rule that allows individuals to treat certain superannuation income stream payments as tax free lump sums will be removed.
With effect from 1 July 2017, the anti-detriment provision, which can result in a refund of tax paid on superannuation contributions during the deceased's lifetime, will be removed.