What it means for your super and retirement - May 2016
What it means for your super and retirement
SNAPSHOT OF SUPER CHANGES
Low income tax offset retained
Reduced $25,000 concessional cap
New $500,000 lifetime non-concessional cap
New $1.6 million cap for transfers to pension accounts
New catch up measure for those with < $500,000 balance
30% concessional contribution tax for those earning over $250,000
Extension of tax deduction for personal contributions
Transition to Retirement changes
Extension of spouse tax offset
A number of key superannuation changes were announced in last night’s Federal Budget, making this a very significant Budget for superannuation.
New measures will see low income earners continue to receive an important tax offset, while those earning over $250,000 will pay a higher rate of tax on their super contributions.
The Government has also announced a $1.6 million cap for transfers to pension accounts.
These measures have different starting dates: some are effective immediately, others next year and some retrospectively.
Below is a summary of the key changes. Follow the links below to the consumer fact sheets released by the Government.
For super members
Low income tax offset retained
A tax offset that provides a super savings boost of up to $500 a year for those earning up to $37,000 has been retained.
The Low Income Superannuation Tax Offset will replace the existing Low Income Superannuation Contribution (LISC) from 1 July 2017. The LISC was previously scheduled to expire on 30 June 2017.
New contribution cap of $25,000 for all
From 1 July, 2017, the annual concessional contributions cap of $30,000 for those aged under 50 - or $35,000 for those 50 or over – has been lowered to $25,000 for all individuals. The cap will index in line with wages growth.
New lifetime non-concessional cap of $500,000
Effective from Budget night (May 3, 2016), a $500,000 lifetime cap on non-concessional contributions will apply for all individuals aged up to 75. This will apply retrospectively by taking into account all non-concessional contributions made since 1 July 2007. The cap will be indexed in $50,000 increments in line with wages. If an individual has exceeded the cap prior to commencement, they will be taken to have used up their lifetime cap but will not be required to take the excess out of the superannuation system. This measure relates to non-concessional (after-tax) contributions NOT concessional contributions.
New $1.6 million cap on money you can put into retirement products
From 1 July, 2017, the Government will introduce a $1.6 million cap on the total amount of superannuation savings that can be transferred from a concessionally-taxed ‘accumulation account’ to a tax-free ‘retirement account’. Superannuation savings accumulated in excess of the cap can remain in an accumulation superannuation account, where the earnings will be taxed at 15 per cent. Those individuals already holding retirement products as at 1 July 2017 with balances in excess of $1.6 million will need to either transfer the excess back into an accumulation superannuation account or withdraw the excess amount from their superannuation (by partial commutation of the income stream). Individuals who think they may be affected by this new measure should consider seeking financial advice.
New catch-up measure for those with balances of $500,000 or less
From July 1, 2017, people with superannuation balances of $500,000 or less will be able to apply their unused concessional cap amounts (now set annually at $25,000) for a period of five years. This measure – which means that those who qualify can make larger super contributions than $25,000 in some years, provided they have unused amounts under their concessional cap over the previous five year period - has been designed to provide more flexibility for those who can make extra contributions and assist those returning to the workforce.
Changes to Transition to Retirement (TTR)
Effective 1 July 2017, the tax exempt status of income from assets supporting transition to retirement income streams will be removed, meaning that the earnings tax in TTR pensions will be 15%. This change will apply irrespective of when the transition to retirement income stream commenced. Individuals will no longer be allowed to treat certain superannuation income stream payments as lump sums for tax minimisation purposes. See the Treasury fact sheet
30% concessional contribution tax for those with incomes of $250,000 or more Individuals with incomes over $250,000 will now be required to pay an additional 15% tax on their super contributions. The threshold was previously $300,000. To be liable for a total of 30 per cent tax, a person would need to have at least $250,000 in combined income and concessional superannuation contributions.
More people able to claim super tax deduction on voluntary contributions From July 1, 2017, anyone under 75 will be able to claim an income tax deduction for personal superannuation contributions to an eligible fund, up to the new $25,000 concessional contribution cap. Previously, many self-employed people were unable to claim a deduction on their personal superannuation contributions, and not everyone has access to salary sacrificing arrangements. These amounts will count towards the individual’s concessional contributions cap, and be subject to 15 per cent contributions cap.
Extension of the spouse tax offset
From 1 July, 2017, the eligibility rules for claiming the tax offset for superannuation contributions people make to their low income spouses will be extended. The current 18 per cent tax offset of up to $540 will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. This is an increase from the current $10,800. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000. Individuals will be able to make contributions on behalf of their spouse who is under age 75.
This document was prepared in May 2016 by the Australian Institute of Superannuation Trustees (AIST) ABN 19 123 284 275. This document is of a general nature and does not take into account your personal objectives, situation or needs.
This document is issued by Motor Trades Association of Australia Superannuation Fund Pty Limited (ABN 14 008 650 628, AFSL 238 718) of Level 3, 39 Brisbane Avenue Barton ACT 2600, Trustee of the MTAA Superannuation Fund (ABN 74 559 365 913), based on measures announced in the Federal Government Budget on 3 May 2016. The measures described in this document are not yet law and are subject to change.
The information provided is of a general nature and does not take into account your specific needs or personal situation. You should assess your financial position and personal objectives before making any decision based on this information. We also recommend that you seek advice from a licensed financial adviser. The MTAA Super Product Disclosure statement (PDS), an important document containing all the information you need to make a decision about MTAA Super, can be obtained by calling MTAA Super on 1300 362 415. You should consider the PDS in making a decision.