Amended Super Reform

The Government has outlined yesterday amendments to the superannuation reforms announced in the 2016/17 Federal Budget.

Note: These changes below are not yet legislated and still have to be introduced to, and make it through, Parliament.

Non Concessional Contribution Cap

The original proposal was to replace the existing non-concessional contribution (NCC) cap with a lifetime limit of $500,000, including all NCCs made since 1 July 2007.

This measure is replaced with an annual NCC cap of $100,000 (currently $180,000). Individuals under age 65 will also be able to continue using the bring-forward rule. This new NCC cap, which applies from 1 July 2017, will be based on four times the lower concessional contribution cap of $25,000.

However, individuals with a superannuation balance of more than $1.6 million will no longer be able to make NCCs from 1 July 2017. The individual’s account balance will be tested at 30 June of the previous financial year.

Those with account balances close to $1.6 million would only be able to make use of the bring-forward rule to the extent that the sum of the balance, the current year contribution and each brought forward contribution is less than $1.6 million. The threshold amount will be linked to the transfer cap amount relating to amounts being transferred to pension phase.

Individuals who triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised that amount will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the new caps.

As the existing rules remain until 1 July 2017, clients who are able to utilise the existing thresholds should consider doing so once the legislation is finalised. This is particularly important for clients who have total superannuation savings of close to or exceeding $1.6 million. This is likely to be the last year individuals with super savings of at least $1.6 million will be able to make an NCC.

Capital Gains Tax Cap

Separate to the NCC cap there are no changes to the contributions made under the CGT cap amount of up to $1.415 million relating to the small business CGT concessions.

Work Test

It was proposed to remove the work test for individuals aged 65 to 74. The Government will not proceed with this change. This means the work test of 40 hours within 30 days must be satisfied for those aged 65 to 74 to be eligible to make contributions to superannuation.

This retains the requirements under the current legislation.

Catch up concessional contributions

The Government will continue with the proposal to reduce the concessional contribution (CC) cap to $25,000 from 1 July 2017. However, the commencement date for the catch up contributions will be delayed until 1 July 2018.

From 1 July 2018, individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in previous financial years. Amounts are carried forward on a five year rolling basis. Amounts not used after five years will expire.

This measure is limited to individuals with a super balance of less than $500,000. There is no detail as to when the account balance is assessed to determine eligibility.

Clients who have the capacity to fully utilise the current CC cap for 2016/17 may wish to consider doing so before the CC cap reduces.

Unchanged measures

  • Reduce the CC cap to $25,000 from 1 July 2017
  • $1.6 million transfer cap for tax free earnings in the pension phase of superannuation and the need to reduce pension balances to this threshold by 1 July 2017
  • Tax on earnings for amounts held in a transition to retirement pension
  • Reduce the income threshold from $300,000 to $250,000 that the additional 15% tax is payable on CCs
  • Ability for all individuals to claim a tax deduction superannuation contributions with the removal of the 10% test
  • Increase of the income thresholds for eligibility for the spouse superannuation contribution tax offset
  • Introduce the Low Income Superannuation Tax Offset (similar to the Low Income Superannuation Contribution which will be abolished from 1 July 2017)
  • Abolish anti-detriment payments
  • Apply the measures to defined benefit funds

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Sourced and written by: Tess Uncle, Associate Director of Wybenga & Partners Pty Limited, Chartered Accountants, Sydney: MLC Technical Team: and the Treasury website.

 

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