|Snapshot of super changes
- Low income superannuation contribution is being replaced with low income super tax offset
- Reduced before-tax (concessional) cap to $25,000 each year
- New $500,000 lifetime after-tax (non-concessional) cap
- New $1.6 million cap for transfers to pension accounts
- New catch-up measure for those with a $500,000 balance or less
- 30% before-tax (concessional) contribution tax for those earning over $250,000
- Tax deduction for personal contributions extended
- Transition to retirement changes
- Spouse tax offset extended
- More people able to claim a super tax deduction on voluntary contributions
- Changes to defined benefit schemes
The short version The government proposed significant super changes in the Federal Budget. New measures, if passed, will see low income earners continue to receive an important tax offset, while those earning over $250,000 will pay a higher rate of tax on their super contributions. In a bid to limit the amount of super you can contribute over a lifetime, the government also announced a $1.6 million cap for transfers to pension accounts. Importantly, most people won’t be negatively impacted by the new measures. The government has estimated that higher contribution taxes, together with limits to amounts you can contribute to super, will affect about 4% of high end Australians. These measures have different starting dates – some are effective immediately, others next year and some retrospectively. Below is a summary of the key changes. Follow the links below to government fact sheets or contact us for more information.
Low income tax offset
A tax offset that gives you a super savings boost of up to $500 a year if you earn up to $37,000 will be introduced to replace the existing Low income super contribution (LISC) from 1 July 2017. The LISC was previously going to expire on 30 June 2017. See the government fact sheet.
Reduced before-tax (concessional) cap
From 1 July 2017, the before-tax cap will be $25,000 each year for everybody. The government has lowered the yearly concessional contributions cap from:
- $30,000 for those aged under 50
- $35,000 for those over 50.
The cap will index in line with wages growth.
New $500,000 lifetime after-tax (non-concessional) cap
Effective from Budget night (3 May 2016), a $500,000 lifetime cap on after-tax (non-concessional) contributions will apply for everyone aged up to 75. This will apply retrospectively, taking into account all after-tax (non‑concessional) contributions made since 1 July 2007. The cap will be indexed in $50,000 increments in line with wages. If you have already exceeded the cap, you will be taken to have used up your lifetime cap but you won’t have to take the excess money out of the super system. This measure relates to after-tax (non-concessional) contributions NOT before-tax (concessional) contributions. See the government fact sheet.
New $1.6 million cap for transfers to pension accounts
From 1 July 2017, the government will introduce a $1.6 million cap on the total amount of super savings you can transfer from a concessionally-taxed accumulation account to a tax-free pension account. If you have super savings over the cap, you can keep them in an accumulation super account, where the government will tax your earnings at 15%. If you’re already retired, as at 1 July 2017, and your balance is over $1.6 million, you’ll need to do one of the following:
- transfer the excess back into an accumulation super account
- withdraw the excess from your super.
If you think you may be affected by this new measure, we recommend you consider talking to a financial expert. See the government fact sheet.
New catch-up measure for those with balances of $500,000 or less
From 1 July 2017, if you have a super balance of $500,000 or less, you’ll be able to hang on to your unused before-tax (concessional) cap amounts (now set at $25,000 a year) for five years. This means that, if you qualify, you can make super contributions of more than $25,000 in some years, where you have ‘unused caps’ over five years. This measure will provide more flexibility for those who can make extra contributions and help those returning to the workforce. See the government fact sheet.
30% before-tax (concessional) contribution tax for those with incomes of $250,000 or more If your income is over $250,000, you’ll now have to pay an extra 15% tax on your super contributions. The threshold was previously $300,000. You’ll have to pay 30% tax if you have at least $250,000 in combined income and before-tax (concessional) super contributions. In 2017–18, this will affect about 1% of fund members. This change will also affect those in defined benefit schemes.
Transition to retirement changes
From 1 July 2017, income from assets supporting transition to retirement income streams will no longer be tax exempt. This means that the earnings tax in transition to retirement strategies will be 15%. This change will apply regardless of when you started your transition to retirement strategy. You won’t be allowed to treat certain super income stream payments as lump sums to reduce tax, anymore. See the government fact sheet.
Spouse tax offset extended
From 1 July 2017, the government will allow more people to claim the tax offset for super contributions they make for their low income spouses. You will be able to claim the current 18% tax offset of up to $540 if you contribute to your spouse’s super, as long as their income is under $37,000 and they are under age 75. This is an increase from the current $10,800 limit. The government will still gradually reduce the offset for income above this level. It completely phases out at income over $40,000. See the government fact sheet.
More people able to claim super tax deduction on voluntary contributions From 1 July 2017, if you are under 75, you’ll be able to claim an income tax deduction for personal super contributions to an eligible fund, up to the new $25,000 before-tax (concessional) contribution cap. Up until now, if you were self-employed, you couldn’t claim a deduction on your personal super contributions. Also, not everyone can salary sacrifice. These amounts will count towards your before-tax (concessional) contributions cap and be taxed at 15%. See the government fact sheet.
Changes to defined benefit schemes From 1 July 2017, the above changes will apply to defined benefit members, with a few exemptions for some funds. If you’re a defined benefit member, you will be able to make concessional contributions to accumulation schemes. However, the $25,000 cap will be reduced by the amount of your ‘notional contributions’. The $250,000 threshold for the high income contributions tax will also apply. From Budget night, after-tax (non-concessional) contributions to defined benefit schemes made since 1 July 2007 will be included in the $500,000 lifetime cap – but you don’t have to withdraw them. If your defined benefit account exceeds your lifetime after-tax (non-concessional) contributions cap, you can keep receiving contributions to your defined benefit account but, if you have an accumulation account, you will have to remove an equivalent amount from it, every year. See the government fact sheet.