On Wednesday 23 November 2016, the major part of the Government’s legislation relating to the taxation of superannuation was passed by both houses and Royal Assent was granted on 29 November 2016. By and large, the measures commence from 1 July 2017.
The amendments are to give effect to the newly enshrined legislative objective of superannuation to provide income in retirement that substitutes or supplements the age pension.
The new measures can broadly be summarised as follows:
Concessional Contributions (contributions from pre-tax income)
From 1 July 2017
- Concessional contributions will be capped at $25,000 for all individuals.
- Individuals who earn more than 10% of their income from employment will now be able to make concessional contributions up to the cap limit.
- The income threshold for Divisions 293 purposes (15% additional tax on superannuation contributions) will be lowered to $250,000.
- Individuals aged 65 to 74 who satisfy the work test will still be able to make additional contributions to superannuation (no change).
From 1 July 2018
- Individuals with less than $500,000 in superannuation will be permitted to make catch-up concessional contributions by utilising their unused contribution limits for the previous five years.
Non-Concessional Contributions (contributions from after-tax income)
From 1 July 2017
- The annual non-concessional contributions cap will be reduced from $180,000 per year to $100,000 per year;
- Individuals aged under 65 will continue to be able to “bring forward” three years’ worth of non-concessional contributions, however there are transitional caps for the 2017 and 2018 years for those who commenced their bring forward in either the 2016 or 2017 years.
- Individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions.
- Individuals aged 65 to 74 who satisfy the work test will still be able to make additional non-concessional contributions to superannuation but will not be eligible to use the bring forward rule (no change).
Retirement income streams (pensions)
From 1 July 2017
- A Transfer Balance Cap of $1.6 million will be introduced on 1 July 2017. Broadly, this means that an individual is only permitted to have a pension account of $1.6 million and all other benefits held in superannuation will be in accumulation accounts. Only the income from the pension account will be exempt from tax.
- The income from assets supporting Transition to Retirement income streams (TRIS) will no longer be exempt from tax.
- Transitional measures will provide an opportunity for assets transferred from the pension account to the accumulation account prior to 30 June 2017 to have their CGT cost bases reset to market value.
- The Transfer Balance Cap for individuals in receipt of defined benefit, lifetime and market linked income streams will be calculated as either 16 times the annual pension amount for defined benefit pensions, or remaining life expectancy times the annual pension amount for market linked pensions. If this “Special Value” exceeds $1.6 million, the individual will not be permitted to have any other pension accounts.
- Recognising that individuals in receipt of defined benefit, lifetime and market linked pensions cannot commute their entitlements, a broadly commensurate measure has been introduced so that if their Special Value is worked out to be in excess of $1.6 million, the individual will be taxed on 50% of the pension income that exceeds $100,000.
- There will be a grace period of 12 months allowed to restructure an individual’s superannuation balances upon receipt of a reversionary or death benefit pension.
Other measures
From 1 July 2017
- Introduce the Low Income Tax Superannuation Offset (LISTO) to ensure that individuals do not pay more tax on their superannuation contributions than on their take-home pay.
- Increase the threshold for spouse income to $40,000 for the purposes of claiming the spouse contribution tax offset (currently $13,800).
- Remove the anti-detriment provisions in the current legislation.