Better targeting of superannuation concessions
96 per cent of individuals with superannuation will not be adversely affected by these changes
To ensure the superannuation tax arrangements support the objective of superannuation and are fiscally sustainable, the Government will better target tax concessions to those who need incentives to save by:
- – Introducing a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.
- This puts a limit on taxpayer support for tax-free retirement phase accounts, but does not limit the savings that can be accumulated outside these accounts or outside superannuation. A balance of $1.6 million could support an income stream in retirement of around four times the level of the single Age Pension.
- The transfer balance cap will affect less than one per cent of superannuation fund members and will be applied to both current retirees and to individuals yet to enter their retirement phase.
- – Requiring those with combined incomes and superannuation contributions greater than $250,000 to pay 30 per cent tax on their concessional contributions, up from 15 per cent. This extends the current treatment of people with combined incomes and superannuation contributions over $300,000. These individuals will still have significant incentives to save for their retirement. This change will only affect around one per cent of superannuation fund members.
- – Lowering the superannuation concessional contributions1 cap to $25,000 per annum. This level still enables individuals to make enough contributions over their working life to be self sufficient in retirement. Lower caps on concessional contributions also make it feasible to allow more flexibility across the system to accommodate modern working arrangements. Reducing the caps on concessional contributions will only affect around three per cent of superannuation fund members.
- – Introducing a $500,000 lifetime cap for non-concessional contributions. The lifetime cap will limit the extent to which the superannuation system can be used for tax minimisation and estate planning. Currently, less than one per cent of superannuation fund members have made contributions above this cap since 2007.
Broadly commensurate treatment will apply to defined benefit arrangements.
In addition to better targeted tax concessions, the Government will introduce the Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017. This will continue to support the accumulation of superannuation for low income earners.
This will allow individuals with an adjusted taxable income of $37,000 or less to receive an effective refund of the tax paid on their concessional contributions, up to a cap of $500.
The Low Income Superannuation Tax Offset will, in particular, assist women to build their superannuation savings.
Taken together, these changes will better target the concessional taxation of superannuation and help to ensure that the superannuation system remains sustainable for the benefit and retirement security of all Australians.
Low income earner
Bronwyn is a part-time worker who earns $20,000 in the 2017-18 income year. Her employer makes compulsory Superannuation Guarantee payments of 9.5 per cent ($1,900 per year) into Bronwyn’s superannuation account. Once in the superannuation account Bronwyn’s contributions are taxed at 15 per cent ($285 per year). At the end of the year Bronwyn will be eligible for a Low Income Superannuation Tax Offset of $285. Bronwyn now effectively pays zero tax on her superannuation contributions.
Middle income earner
In 2017-18, Jamie earns an average full-time wage of $80,000 per year. His employer makes compulsory Superannuation Guarantee payments of 9.5 per cent of his salary ($7,600 per year) into his superannuation account. Jamie makes no additional contributions to superannuation and is not affected by the changes. Jamie can still make additional concessional superannuation contributions of $17,400 either through salary sacrifice or by making a deductible personal contribution. If Jamie inherited some money, he could also put this in his superannuation (subject to the new $500,000 lifetime cap for non-concessional contributions).