As you are no doubt aware, a week ago today two superannuation bills, which include the much talked about super reforms, passed through both houses of Parliament.
These two bills, the Superannuation (Excess Transfer Balance Tax) Imposition Bill 2016 and the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 impose the following major changes to superannuation:
Maximum of $1.6m in superannuation pension phase
From 1 July 2017 individuals can only hold a maximum of $1.6m in superannuation pension phase where the earnings are tax-exempt.
Where individuals are forced to roll back some of their pension to comply with the new $1.6m pension cap, transitional provisions provide capital gains tax relief for capital gains accumulated before 1 July 2017.
Reduction to the concessional contribution cap to $25,000 per annum from 1 July 2017 (the current concessional cap is $30,000 for individuals under age 50 and $35,000 for individuals aged 50 and over).
Reduction to the non-concessional (after-tax) contribution cap to $100,000 per annum from 1 July 2017 (the current non-concessional contribution cap is $180,000 pa). This means the 3 year bring forward cap reduces to $300,000 from 1 July 2017.
Individuals with a superannuation balance of more than $1.6m will no longer be eligible to make non-concessional (after-tax) contributions from 1 July 2017.
Catch up concessional contributions will now be possible from 1 July 2018 on a rolling 5 year basis for those with less than $500,000 in super.
Removed the requirement that an individual must earn less than 10% of their income from employment to be able to claim a tax deduction for personal superannuation contributions. This means more individuals will be able to claim a tax deduction for personal superannuation contributions.
The additional 15% tax on concessional contributions will start for incomes over $250,000 pa (was $300,000). Note that this threshold includes taxable income plus the superannuation contribution made.
Transition to retirement pensions
From 1 July 2017 investment earnings on transition to retirement pensions will no longer be tax-exempt and instead will be taxed at a maximum of 15% (the same as in superannuation accumulation phase).
Actions and Strategies
As a result of these changes there are a number of strategies that need to be considered, and implemented, before 30 June 2017. The most immediate ones include:
- Maximise the non concessional contributions ($180,000 for one year or $540,000 bring forward)
- Rebalancing of member balances between spouses where one spouse is close to or over the $1.6mil threshold – this is possible while in pension phase;
- Review Transition to Retirement strategies and assess whether they still make sense
Of course these strategies are dependent upon your personal circumstances. Appropriate licensed financial advice should be obtained.