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September 2016 - Federal Budget update

Following a closer than anticipated Federal Election, the Coalition has revised some of the proposed superannuation changes from the 2016 Budget, the first under Malcolm Turnbull and Scott Morrison.

Note that these changes are proposed at this stage.


Superannuation - The Ever Moving Target

DUMPED - LIFETIME LIMIT FOR NON-CONCESSIONAL SUPERANNUATION CONTRIBUTIONS

The (Old) Change: A lifetime limit was to be imposed on all non-concessional contributions of $500,000 effective from 7:30 pm, 3 May 2016. This was to count all contributions since 1 July 2007. People who have already exceeded the limit will be deemed to have reached their cap with no further action.

Note that this was to replace the annual non-concessional cap and 3 year bring forward rule.

The (New) Change: Similar to the old bring forward provisions which are currently $180,000 per annum or 3 years worth in one allotment of $540,000. However, the new limits will be $100,000 per annum or $300,000 in one contribution (locking you out for a further 2 years). Note that the $180,000 ($540,000) limit remains until 01 July 2017. There will be no lifetime limit.


RETAINED - REDUCTION IN CONCESSIONAL CONTRIBUTIONS CAP

Current Rules: People aged 50 or over can contribute $35,000 to superannuation as concessional contributions and those under 50, $30,000. Concessional contributions come from employer superannuation guarantee, salary sacrifice and deductible self-employed contributions.

The Change: A new limit for all workers of $25,000 per annum will be introduced effective from 1 July 2017.


MODIFIED - ALLOW CATCH UP OF UNUSED CONCESSIONAL CAPS

Current Rules: Concessional caps are currently on a "use it or lose it" basis and expire at the end of each year.

The Change: For clients with super balances less than $500,000, from 1 July 2019 (WAS TO BE 2017) there will be provision to make additional concessional contributions using the previous year of unused caps, continuing to accumulate in 5 year rolling periods.



RETAINED - CHANGES TO TRANSITION TO RETIREMENT PENSIONS

Current Rules: The earnings on the assets used to back transition to retirement pensions are currently tax free. In contrast, assets in superannuation accumulation mode earnings are taxed at between 10% and 15%. Note that these are the internally taxed superannuation earnings, not how the pensions are taxed ultimately in the clients hands (no changes apply here).

The Change: Transition to retirement pensions will lose their tax free status on the asset earnings base come 1 July 2017.


RETAINED - INTRODUCTION OF $1.6 MILLION RETIREMENT INCOME STREAM CAP

Current Rules: There is currently no limit on the amount that clients can use to commence a retirement income stream.

The Change: From 1 July 2017 a "superannuation transfer balance cap" of $1.6 million will be introduced on the total amount of funds a retiree can use to purchase a tax free income stream. Note that this does not limit the amount you can accumulate in super, just the amount you can commence an income stream with.

Importantly, those with balances above $1.6 million will be required to bring their account balance back below $1.6 million by 1 July 2017.


SCRAPPED - CHANGES TO CONTRIBUTION RULES FOR 65-74 YEAR OLDS

Current Rules: In order to contribute to superannuation, those aged between 65-74 must meet a work test of 40 hours in a 30 day period. The Government was going to remove this test, but has instead elected to retain it.


RETAINED - TAX DEDUCTIONS FOR PERSONAL SUPERANNUATION CONTRIBUTIONS

Current Rules: To make a deductible contribution to superannuation, an employee must make a salary sacrifice contribution. Alternatively, those who are substantially self-employed can claim a tax deduction on their personal superannuation contributions via their tax returns.

The Change: From 1 July 2017, employees will now be able to make after tax contributions to superannuation and claim these as a personal tax deduction at tax time. For example, if your employer makes $15,000 worth of contributions for you during the year, you can then make a further $10,000 personal contribution to super and claim this at tax time (providing your overall contribution does not exceed $25,000).


RETAINED - CHANGES FOR HIGH INCOME EARNERS

Current Rules: Currently those with adjusted taxable income of $300,000 are required to pay an additional 15% contributions tax on their concessional contributions, bringing total superannuation contributions tax paid up to 30%.

The Change: From 1 July 2017, the additional 15% contributions tax will apply to those on adjusted taxable income of $250,000.


RETAINED - REMOVAL OF ANTI DETRIMENT PROVISIONS

Current Rules: Clients who pass away are able to claim back the amount of superannuation contributions tax paid throughout their lifetime.

The Change: From 1 July 2017, the government will remove the ability to make this claim.


RETAINED - EXTENSION OF SPOUSE CONTRIBUTION REBATE

Current Rules: If you make a superannuation contribution for your spouse of up to $3,000, you can receive a $540 rebate provided your spouses' income is below $10,800.

The Change: From 1 July 2017, the income level for the receiving spouse will be increased up to $37,000.



Conclusion

The relaxation of some of these measures is welcome. However, the cut to the concessional limits is certainly frustrating.

If you have any questions in relation to this at all, please do not hesitate to give me a call.


Kind regards

Derek Fitzgerald
Director 
BPsych, PGradDip PFP 
CERTIFIED FINANCIAL PLANNER® professional 
LRS® Life Risk Specialist 
Authorised Representative of AFSL 307169