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Superannuation Reform Passes Parliament

Article By Adam Hurwood | | Accounting & Tax
A few months on from the Turnbull government releasing their first draft legislation, the superannuation reform passed through parliament last Wednesday night. The reform sees significant changes for all taxpayers, with both the taxation of super contributions and taxation of super account balances already invested in superannuation affected.

To take effect from 1 July 2017, the key changes include:

Introduction of a transfer balance cap of $1.6 million
Reducing the non-concessional contribution cap to $100,000 p.a.
Reducing the concessional contribution cap to $25,000 for all taxpayers
A catch-up regime for those with a superannuation balance of less than $500,000
Removal of the 10% employment income for allowable superannuation contribution
Reducing the Division 293 tax income threshold to $250,000
Removal of the Anti-detriment payment
Improve super balances of low income spouses
Extending the Low Income Superannuation Tax Offset (LISTO) – originally called Low Income Superannuation Contribution (LISC)
Earnings on transition to retirement (TTR) income streams to be taxed

To consider how these changes will affect you, contact your Altitude Adviser.

$1.6m Transfer Balance Cap

Tax free earnings to be capped to superannuation pension accounts with a maximum balance of $1.6 million.

Taxpayers who have more than $1.6 million in accumulation (or approaching this level) and want to commence an income stream (pension). Taxpayers who have already commenced an income stream (pension) where the balance is above $1.6m. The excess will be transferred back to accumulation phase where earnings will be taxable.

The cap will be indexed each year, with the cap to be increased in increments of $100,000. With each indexation increase, a taxpayer’s ability to contribute further funds into pension will be subjected to a proportionate rule based on the balance already utilised.

Annual Non-Concessional Contribution (NCC) Cap

The new rules will reduce the current NCC Cap from $180,000 to $100,000 per annum. The 3-year bring forward provisions will remain as per the current provisions based on the lower cap. From 1 July 2017, this will allow up to $300,000 over 3 years to be contributed to super.

The 3-year rule is apportioned if triggered by taxpayers with super balances between $1.4 and $1.6 million. No NCCs will be allowed once the proposed $1.6m transfer cap has been reached.

Transitional periods

If the 3-year bring forward rule is triggered prior to 30 June 2017, the maximum NCC cap will remain at $540,000 the same (i.e. $180,000 for each year) up to 30 June 2017. After 1 July 2017, the change in NNC cap requires a recalculation of the cap but could effectively reduce a taxpayer’s NCC cap from $540,000 to $380,000.

Concessional Contributions (CC) Cap

The concessional contributions cap is lowered to $25,000 for all age groups (currently $30,000 for those under 50 and $35,000 for those aged 50 and over). This cap applies to:

  • Salary sacrificed contributions
  • Personal deducted contributions and
  • Compulsory superannuation guarantees contributions.

Concessional Contributions (CC) Cap Catch-Up Regime

The ability to catch up on prior year unused CC cap, will take effect from 1 July 2018. Where the $25,000 CC Cap is not fully utilised in a financial year, the difference will be rolled over allowing a higher threshold next financial year. With a continuous rolling period of 5 years, a maximum CC of $125,000 could be available to a taxpayer in the 2023 financial year.

The catch-up contribution is only available to those with a superannuation account balance of no more than $500,000.

Removal of the 10% Employment Income Test

The 10% employment income test on personal superannuation contributions will be removed. This will allow employees to claim a deduction for super contributions through their tax return, not just through a salary sacrificing arrangement at work.

Reducing the Division 293 Threshold

The Division 293 income threshold will be lowered from $300,000 to $250,000 from 1 July 2017. Where a high income earner exceeds the total earnings threshold, an additional 15% tax is assessed on concessional contributions (CC), increasing the overall taxing of CC to 30% for that financial year.

Removal of the Anti-detriment provisions

The abolishment of the anti-detriment payment, which generally representing a refund of the 15% contribution tax paid during a member’s lifetime, which is paid as a lump sum to certain dependents of a deceased member.

Improve super balances of low income spouses

The income threshold for a low income spouse to determine eligibility for low income spouse tax offset will increase from $10,800 to $37,000, allowing more taxpayers a tax offset for contributing to their spouse’s super. The offset amount will remain the same at $540.

Introduction of low income super tax offset

Those on an adjusted taxable income of less than $37,000 will effectively receive a refund of the tax paid on their concessional contributions up to $500. This measure avoids the situation where a person below $37,000 is paying more tax on their super contributions than on income earned outside of super.

Earnings on transition to retirement (TTR) income streams to be taxed

Whilst TTR income streams will still be available, earnings on assets supporting the income stream will no longer be tax free but taxed at 15%. TTR pension payments will continue to be tax free from age 60 and the taxable portion of pension payments will attract the 15% tax offset prior to age 60. This measure will remove a significant portion of the tax benefit available upon transferring superannuation assets to the currently tax-free TTR pension environment.