Overview of the upcoming super reforms
The reforms to superannuation made in the 2016 Federal Budget are on their way with most of the changes commencing from 1 July 2017.
Some of the changes to take place from 1 July 2017 onwards will include:
Lowering the concessional and non-concessional contribution caps
The cap on concessional (before-tax) contributions will be decreased from $30,000 (for those under the age of 50) or $35,000 (for those aged 50 years old and over) to the flat rate of $25,000 per year for all age groups.
The new annual cap for non-concessional (after-tax) contributions will be reduced from $180,000 to $100,000. This will remain available to individuals between 65 and 74 years old if they meet the work test. Individuals under the age of 65 will be able to bring-forward three years of contributions, i.e. $300,000.
Transfer balance cap
The introduction of a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions. These pensions are commonly provided to defined benefit funds but may be provided to other funds, including some self-managed super funds.
Reduction of Division 293 threshold
The Division 293 threshold will be lowered from $300,000 to $250,000. Individuals with income and concessional super contributions exceeding the $250,000 threshold will have an additional 15 per cent tax imposed on the amount over the threshold, up to the total amount of concessional contributions not exceeding their concessional contributions cap.
Changes to transition to retirement income streams (TRIS)
Currently, where a member receives a TRIS, the fund receives tax free earnings on the super assets that support it. The Government will remove the tax-exempt status of earnings from assets that support a TRIS. Earnings from assets supporting a TRIS will be taxed at 15 per cent regardless of the date the TRIS commenced. Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
Spouse tax offset
Currently, an individual can claim a tax offset up to a maximum of $540 for contributions they make to their spouse’s eligible super fund if, among other things, the total of the spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions is under $13,800.
The spouse’s income threshold will be increased to $40,000 from 1 July 2017. The current 18 per cent tax offset of up to $540 will remain as is and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.