Government Announces Key Changes To Proposed Superannuation Reforms
The Turnbull Government recently announced a U-turn on its proposal to introduce a $500,000 lifetime non-concessional contributions cap on superannuation. In order to recover the cost of scrapping the lifetime cap, the Government has proposed a number of changes to its super package announced in the Federal Budget.
The key changes to the super package are outlined below.
Crucially, the $500,000 lifetime cap on non-concessional contributions has been reversed. In its place, the Government has announced a reduction of the existing annual cap of $180,000 to $100,000, effective from 1 July 2017. The new yearly cap will include a three-year ‘bring forward’ rule for individuals aged under 65, limited to those who have a balance of $1.6 million.
Once the $1.6 million limit is reached, individuals will be unable to make further non-concessional contributions, even to an accumulation account.
The concessional contributions cap will still be reduced to $25,000 from 1 July 2017 as per the Budget proposal. However, the Government has deferred starting catch-up concessional contributions, which allow individuals with interrupted work patterns to roll over unused contributions from the previous year, given they have a superannuation balance of $500,000 or less. The concessional contribution catch-up provision will now commence one year later, from 1 July 2018.
The government has made another U turn on the plan to abolish the work test for those aged 65-74. Individuals in this age bracket will still need to meet minimum work requirements before making voluntary contributions to their super. The existing arrangements for those aged 65 and over will continue.
Treasurer Scott Morrison announced that the revised package will save the budget $180 million over the next four years and $670 million in the medium-term. Mr Morrison has stated that the new measures will help ensure that super tax concessions are not used as a tax-incentivised estate planning vehicle and will support Australians to maximise their retirement balances in the pension phase where they can access tax-free earnings.
The revised super legislation will be introduced before the end of the calendar year, with changes to have effect from 1 July 2017.
Should you have any questions in relation to the changes, or super reform in general, please contact us or speak to your ESV engagement partner on 02 9283 1666.