Summary:
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The Government’s 2016 Budget Superannuation changes have cleared Parliament
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Start date 1 July 2017
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Maximum $1.6 million Tax-Free pension. Amounts in excess will be ‘rolled back’ into Accumulation
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Concessional Contributing Cap $25,000 – Non-Concessional Contribution Cap $100,000
Key Take-out:
After months of uncertainty, the Senate has passed the Federal Government's superannuation reform package. The initial proposal from the May 2016 Federal Budget has seen significant amendments. Much of the change has a commencement date of 1 July 2017 and generally speaking, the superannuation environment will be more restrictive after July 2017. This provides superannuation fund members with a seven-month window to take advantage of the existing provisions and best position their superannuation assets to provide maximum benefits into the future. The opportunity is significant and the time to act is now.
Superannuation Contributions
From 1 July 2017, it will become more difficult to grow your superannuation balance through personal contributions to your fund.
The annual limit for concessional contributions will reduce from $35,000 ($30,000 for those under 50) to $25,000. You should consider the benefits of maximising pre-tax contributions in the current financial year under the existing limit and also ensure you are not in a position of excess when the rules change.
The annual limit for non-concessional contributions will reduce from $180,000 to $100,000, with the potential to utilise the three-year ‘bring forward rule’ to remain, subject to certain criteria. Individuals with a superannuation balance in excess of $1.6 million will no longer be eligible to make after-tax contributions. This presents a significant opportunity to maximise your superannuation balance under the current and more favourable limit, before 1 July 2017. Anyone with personal investment assets should consider the merits and implications of contributing them into super this financial year.
Importantly small business owners will continue to be eligible to access an increased contribution limit, subject to certain eligibility requirements, such as an eligible sale of a business in the year of the contribution.
Planning earlier for your retirement will deliver greater value under the new regime. Each year you fail to use contribution eligibility, you will limit your ability to build wealth for retirement in the most tax effective manner.
Pension Phase
From 1 July 2017 an individual may only hold a maximum of $1.6 million in the tax-free pension phase. Fund balances in excess of the threshold must be held in an accumulation account which is subject to a tax rate of 15% on fund earnings.
There are transitional provisions that will allow the cost base of assets supporting a pension to be reset at 1 July 2017, subject to certain eligibility requirements, such as the asset being held by the fund on 9 November 2016. These transitional provisions are only intended to provide relief where individuals are required to transfer an amount from pension phase to accumulation phase to comply with the $1.6 million cap. The provisions may prevent eligible assets transferred from pension phase to accumulation phase from being taxed on gains derived prior to 1 July 2017.
Individuals with ‘transition to retirement' pension accounts will be levied with 15% tax on investment earnings and therefore the appropriateness of this strategy should be reviewed.
In addition to the changes outlined above, the following will also come into effect from 1 July 2017:
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Additional 15% contribution tax for those earning income greater than $250,000
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A greater ability for individuals to make personal contributions and claim a tax deduction
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An effective refund of superannuation contributions tax for those earning an annual income of less than $37,000
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The ability to claim a tax offset for spouse contributions if your spouse is earning less than $40,000
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Death benefits paid to beneficiaries will no longer be eligible for a refund of contributions tax paid by the deceased
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Individuals with less than $500,000 in super will have the ability to catch-up on unused contribution eligibility from 1 July 2018 on a rolling 5-year basis
Depending on your circumstances, the superannuation reform package will present varying opportunities and implications. Having the right retirement plan in place can deliver significant long-term benefits.
Moore Stephens will be holding client seminars on the changes early in 2017, with invitations to be sent in January.
We will be contacting clients to discuss how the Budget changes affect their Superannuation Fund and what opportunities exist prior to 1 July 2017. In the meantime, any client wishing to discuss their personal retirement planning circumstances should contact their Moore Stephens Director.
Michael Bryant, John LaRocca, Kevin Mullen, Robert Manson, Neal Dunne and Michael Turner are authorised representatives of Moore Stephens Wealth Management (VIC) AFSL 472131.
The information within this article is of a general nature only and does not consider your personal objectives, financial situation or needs. Accordingly you should consider the appropriateness of this information in the context of your own objectives, financial situation and needs, before acting on the information. We recommend that you consult a licensed financial adviser if you require financial advice that takes into account your personal circumstances.