Budget Brief: Superannuation
The changes to Superannuation have been wide ranging and have been focused on those with high incomes seeking to put money into superannuation or those with high balances within superannuation. The view taken by the Government is that the Superannuation regime has been used to generate and accumulate wealth over what is needed for retirement and that this needs to be curtailed.
The main changes to the superannuation regime have been noted below:
- A retirement account cap of $1.6m has been introduced with effect from 1 July 2017. Where an individual has more than $1.6m in superannuation, they will be able to maintain the excess over $1.6m in an accumulation phase account where earnings will be taxed at the existing concessional rate of 15% rather than holding all the balance in the retirement (or pension phase) account. Taxpayers who already have more than $1.6m in pension phase will be required to address the excess either by way of withdrawal or transition back into accumulation phase by 1 July 2017.
Click here for further details on the retirement account balance cap.
- The introduction of a lifetime non-concessional contributions cap $500,000 effective from 7.30 pm (AEST) on 3 May 2016. The lifetime non-concessional cap replaces the existing annual non-concessional contributions cap of up to $180,000 per year (or $540,000 every 3-years under the bring-forward rule for individuals aged under 65). The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.
- Concessional contributions cap (ie pre tax contributions) will be reduced to $25,000 for all individuals regardless of age from 1 July 2017, with an ongoing annual indexation of the cap. This represents a reduction in the current caps from $30,000 (under age 49) or $35,000 (aged 49 or over on 30 June for the previous income year).
- Transition to retirement - The concessional tax treatment afforded to pension assets supporting transition retirement pensions will be removed from 1 July 2017. The tax rate will revert to the tax rate prevailing for accumulation accounts (15%). Importantly the change will apply irrespective of when the transition to retirement commenced. Furthermore the election to treat transition payments received as lump sums for tax purposes will no longer be available.
- The income threshold above which the additional 15% tax on superannuation contributions (known as Division 293 tax) will be reduced from $300,000 to $250,000 from 1 July 2017.
- The work test for making superannuation contributions for people aged 65 to 74 will be removed from 1 July 2017.
- From 1 July 2017, the 10% earning test will be removed allowing individuals, regardless of their employment circumstances, to make concessional super contributions up to the concessional cap.