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Budget 2016 – Superannuation

Last week, in his budget speech, Federal Treasure Scott Morrison put forward a number of proposed changes to superannuation.

Here is a brief roundup of what the proposal are.

  • Lifetime cap on non-concessional contributions
  • Concessional contributions cap reduced
  • 30% tax on super for high income earners
  • Tax free super balances capped at $1.6m
  • Tax deductions on super contributions expanded

You can see by the dates to take effect only the lifetime cap on non-concessional contributions has an immediate impact.

If you are planning to make a non-concessional contribution to your super fund prior to 30 June 2016 and have made previous contributions of this nature please contact us to ensure you don’t breech this cap.

Regarding the other changes they will not take effect until 1 July 2017, so there is plenty of time to plan.

Remember, proposals are not set in stone and could change as legislation passes through parliament.

Once these changes are passed we recommend you strategically review how these changes impact your current circumstances.

If you require assistance with this do not hesitate to contact myself or Susan Stainwald.

Sunshine Coast: 07 5474 8955

JOHN SIEMON

John Siemon

(Partner)


Lifetime cap on non – concessional contributions

Applies to all non – concessional contributions made on or after 1 July 2007
Date of effect: 7.30 pm (AEST) on 3 May 2016

  • The current contributions cap will reduce to $25,000 from 1 July 2017.

A lifetime $500,000 non-concessional contributions cap will be introduced from Budget night.

The current system of annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65), will be replaced with this new lifetime cap.

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence at 7.30 pm (AEST) on 3 May 2016.  Contributions made before commencement will not result in an excess.  However, excess contributions made after commencement will need to be removed or will be subject to penalty tax.  The cap will be indexed to average weekly ordinary time earnings.

The lifetime cap is available up to age 74.


 Concessional contributions cap reduced

Date of effect: 1 July 2017

  • The current concessional contributions cap will reduce to $25,000 from 1 July 2017.

Age: Under 50
Current concessional gap: $30,000
From 1 July 2017: $25,000

Age: 50 & over
Current concessional gap: $35,000
From 1 July 2017: $25,000


30% tax on super for high income earners

Date of effect: 1 July 2017

At present, individuals with combined income and superannuation contributions of more than $300,000 pay an additional  contributions tax of 15% on concessional contributions. From 1 July 2017, this income threshold will reduce to $250,000.


Tax free super balances capped at $1.6m

Date of effect: 1 July 2017

A new $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free.  Transfers in excess of this $1.6 million cap (including earnings on these excess transferred amounts) will be taxed in a similar way to the tax treatment that applies to excess non-concessional contributions.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%).

Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017.  Excess balances for these members may be converted to superannuation accumulation phase accounts.

The amount of cap space remaining for a member seeking to make more than one transfer into a retirement phase account will be determined by apportionment.


Tax deductions on super contributions expanded

Date of effect: 1 July 2017

All individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions from 1 July 2017.  This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap – partially self employed, employees whose employers don’t offer salary sacrifice arrangements, etc.This is a sensible move, which means that it will no longer be necessary for individuals to pass a 10% test in order to be able to claim a deduction for personal superannuation contributions.  Currently, an individual can only claim a deduction for personal contributions where less than 10% of their adjusted income for the year relates to employment activities.  The 10% test can make it difficult for people who have started their own business to make deductible superannuation contributions where they also have part-time work.

(Source: The Knowledge Shop)