Super legislation passed on 23 November 2016
As the legislation has been passed, the superannuation industry is not considering the exact changes so the best outcome can be considered and implemented, given an individual’s situation.
The key superannuation reforms that will apply from 1 July 2017:
- the maximum amount that a member will be able to have in retirement phase (pension phase) will be $1.6M. This amount will be indexed in $100,000 increments. The effect is that members will be able to have up to $1.6M in pension phase where the investment income is not taxed. Any superannuation balance over this amount will have its earnings taxed at 15%;
- there are transitional CGT relief rules that will be used where a member in pension phase has a current balance greater than $1.6M. The key impact of this is the ability to restate the cost price of assets to their market value as at 1 July 2017;
- if aged under 65 and in receipt of a transition to retirement income stream (TRIS), the Fund’s income will be taxed at 15% (instead of being tax free);
- the existing annual concessional contributions cap of $30,000 per year ($35,000 if aged 49 or older), has been reduced to $25,000 per year;
- the existing annual non-concessional contributions cap of $180,000 per year has been reduced to $100,000 per year;
- individuals under the age of 65 will continue to be able to bring forward 3 years’ worth of non-concessional contributions in recognition of the fact that such contributions are often made in lump sums;
- individuals with a super balance of more than $1.6M will no longer be eligible to make non-concessional contributions from 1 July 2017. This limit will be indexed and tied to the pension cap of $1.6M;
- the ‘work test’ for people aged 65 has not been scrapped. In order to make contributions from age 65 (to age 74), people must meet a work test of 40 hours in a 30-day period in the financial year in which they want to contribute;
- the threshold at which high income earners pay higher tax on their concessional contributions has been decreased from $300,000 to $250,000;
- the requirement to be able to claim a deduction for personal superannuation contributions will no longer require earning less than 10% of your income from employment.
The aim of this legislation is to restrict superannuation from being used as an estate planning vehicle, while providing greater support to people investing in superannuation to provide a higher income level to support them in their retirement.
What you can do between now and 1 July 2017
- Consider making concessional contributions in the year ended 30 June 2017, up to the higher amount.
- Consider making non-concessional contributions in the year ended 30 June 2017, up to the higher cap amount.
- If in receipt of a TRIS, consider the taxation implications of continuing the pension post 1 July 2017.
- Consider the ability to split contributions, given the $1.6M pension cap.
- If you have a current pension balance greater than $1.6M, consider post 1 July 2017 if the excess will be kept inside or outside of superannuation.
- If you have a current pension balance greater than $1.6M. consider the CGT relief transitional rules with effect from 1 July 2017.
- Speak to us before making any decisions.
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