Understanding superannuation and the federal budget
14 June 2016
Superannuation was front and centre in this year’s Federal Budget with the Government announcing numerous tax reforms to improve the sustainability, flexibility and integrity of the superannuation system. Many of the changes will be effective from 1 July 2017, others were immediate. We discuss some of the major changes announced below however, it is important to remember that these announcements have not yet been legislated:
The most significant and immediate change is the introduction of a $500,000 lifetime cap on non-concessional contributions effective from 7:30pm on 3 May 2016 (budget night).
The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007. However, contributions made before commencement cannot result in an excess and can remain in super, yet excess contributions made after 7:30pm budget night will need to be removed or be subject to penalty tax.
Although this measure is not yet law it will need to be taken into account for any non-concessional contributions made after budget night because if it does become law those contributions will be affected.
From 1 July 2017 the annual cap on concessional superannuation contributions will be reduced to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).
However, to cater for individuals with broken work patterns, from 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not contributed up to their concessional contributions cap in previous years. Unused contribution cap amounts can be carried forward on a rolling basis for a period of five consecutive years, if accrued after 1 July 2017.
To cater for those individuals who are self-employed, part self-employed or lack employer superannuation support from 1 July 2017 they will be allowed to claim an income tax deduction for personal superannuation contributions up to the concessional contribution cap, regardless of work status. Additionally, individuals aged up to 75 will be able to contribute or have contributions made for them up to the concessional contribution cap and be eligible for a deduction to the extent the contribution is made by them personally.
Additional contributions tax for high income earners extended to more taxpayers
In an effort to reduce the marginal tax benefit a higher income earner receives from contributing to superannuation, from 1 July 2017, the Division 293 threshold (beyond which high income earners pay an additional 15 per cent contributions tax) will be lowered from $300,000 to $250,000. This means more taxpayers will be subject to the tax based on the lower income limit.
From 1 July 2017, a $1.6 million transfer cap on the total amount of superannuation savings that can be transferred from accumulation phase to pension phase will be introduced.
Subsequent earnings on these transferred balances will be allowed to remain in pension phase, but if the full $1.6 million transfer cap has been used, any reduction of balances below that cap amount can’t be added to from accumulation accounts or contributions.
Where superannuation balances have accumulated in excess of $1.6 million, the excess can remain in accumulation phase and earnings will be taxed at the concessional rate of 15 per cent.
Come 1 July 2017, if an individual’s pension phase balance exceeds $1.6 million they will be required to ‘transfer’ the excess over $1.6 million back into accumulation phase or pay out the benefits. Amounts transferred in excess of the cap will be subject to tax, similar to that which applies to excess non-concessional contributions.
It is really important that you seek advice from your advisor prior to making a pension withdrawal and/or a superannuation contribution.
As part of the government's Stronger Super reforms, all businesses need to adapt the way they make contributions to superannuation funds. Employers will be able to manage super obligations using a clearing house solution as part of the SuperStream initiative.
These reforms should make it easier for all Australians to keep track of their super, resulting in fewer lost super accounts and easier ways to identify your employees when you make contributions.
For employers with 20 or more employees, employers need to already be using SuperStream. If you are yet to be compliant, you need to action this immediately.
For employers with 19 or fewer employees, SuperStream started on 1 July 2015 and employers have until 1 July 2016 to meet the SuperStream requirements.
To download a copy of our SuperStream Factsheet click HERE.
Superannuation contribution deadline
The deadline for superannuation contributions is fast approaching. It’s important to remember the super payment needs to be received and processed by your superannuation funds by 30 June to be able to to claim these payments as tax deductions.
We suggest you submit your superannuation batches by Friday 24 June. This way the payments will reach the super funds on time.
Should you have any questions or require assistance in assuring that your business is SuperStream compliant, please contact your local Boyce accountant.