(Australian Taxation Office)
8th February 2017
The changes to the superannuation (super) system, announced by the Australian Government in the May 2016 Budget have now received Royal Assent. These changes were designed to improve the sustainability, flexibility and integrity of Australia’s super system. Most of the changes will commence from 1 July 2017.
Your super is your future – check to see if you are directly affected, or what these changes may provide for you to maximise your savings for retirement.
An overview of the changes is below. More detailed information is being progressively published to help you understand the changes, how they may affect you, and what you may need to know and do now, or in the future.
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Overview of super changes
- Spouse tax offset
- Personal super contributions deduction
- Low income super tax offset contribution (LISTO)
- Introducing a transfer balance cap of $1.6 million for pension phase accounts
- Reduction of Division 293 income threshold to $250,000
- Lowering the non-concessional (post-tax) contributions cap to $100,000 per annum
- Reduction of concessional (pre-tax) contributions cap to $25,000 per annum
- Carry-forward concessional contributions of unused caps over five years
- Improving the integrity of retirement income streams
- Removal of anti-detriment payment
- Innovative retirement income stream products
- Change in eligibility criteria for Co-contributions
Spouse tax offset
Currently an individual can claim a tax offset up to a maximum of $540 for contributions they make to their spouse’s eligible super fund if, among other things, the total of the spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions is under $13,800.
From 1 July 2017, the spouse’s income threshold will be increased to $40,000. The current 18% tax offset of up to $540 will remain as is and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $37,000. As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.
Individuals will not be entitled to the tax offset when the spouse receiving the contribution has exceeded their non-concessional contributions cap for the relevant year, or has a total superannuation balance equal to or exceeding the transfer balance cap immediately before the start of the financial year in which the contribution was made.
The intent of this change is to extend the current spouse tax offset to assist more couples to support each other in saving for retirement. This will better target super tax concessions to low-income earners and people with interrupted work patterns.
Personal super contributions deduction
Currently, an individual (primarily self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages.
From 1 July 2017, this condition will be removed. The remaining conditions remain the same.
The intent of this change is to improve the flexibility of the super system so that more Australians can utilise their concessional contributions cap.
Low income super tax offset contribution (LISTO)
The government will introduce a Low Income Superannuation Tax Offset (LISTO), which will replace the Low Income Superannuation Contribution (LISC) policy that has been repealed from 1 July 2017.
LISTO will provide continued support for low-income earners and ensure that generally they do not pay more tax on their super contributions than on their take-home pay.
From 1 July 2017, eligible individuals with an adjusted taxable income up to $37,000 will receive a LISTO contribution to their super fund. The LISTO contribution will be equal to 15% of their total concessional (pre-tax) super contributions for an income year, capped at $500.
Introducing a transfer balance cap of $1.6 million for pension phase accounts
From 1 July 2017, the government will introduce a $1.6 million cap on the total amount that can be transferred into the tax-free retirement phase for account-based pensions.
To provide a broadly equivalent outcome for people over 60 years old, this will also mean a change to the taxation of:
- lifetime pensions paid under subregulation 1.06(2) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) and annuities paid under subregulation 1.05(2) of the SISR
- current life expectancy pensions paid under subregulation 1.06(7) and annuities paid under subregulation 1.05(9) of the SISR
- current market-linked pensions paid under subregulation 1.06(8) and annuities paid under subregulation 1.05(10) of the SISR.
These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including some self-managed super funds (SMSFs).
The general transfer balance cap will be indexed in $100,000 increments in line with CPI. Indexation will be applied proportionally where a member is a retirement phase income stream recipient, but has not at any time met or exceeded their cap.
Two draft Law companion guidelines are available:
- LCG 2016/D9
Superannuation reform: transfer balance cap
- LCG 2016/D8
Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds
Detailed information will be available within the next week.
Reduction of Division 293 income threshold to $250,000
Currently individuals with income and concessional super contributions in excess of $300,000 trigger a Division 293 assessment.
From 1 July 2017, the government will lower the Division 293 income threshold to $250,000. An individual with income, and concessional super contributions, exceeding the $250,000 threshold will have an additional 15% tax imposed on the amount over the threshold, up to the total amount of concessional contributions not exceeding their concessional contributions cap.
The intent of this change is to better target tax concessions to ensure the superannuation system is equitable and sustainable.
Lowering the non-concessional (post-tax) contributions cap to $100,000 per annum
From 1 July 2017, the government will reduce the annual non-concessional (after tax) contribution cap from $180,000 to $100,000 per year. This will remain available to individuals between 65 and 74 years old if they meet the work test. The cap will be indexed in line with the concessional contributions caps.
Individuals with a total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million for the 2017-18 financial year) at the end of 30 June of the previous financial year, and makes non-concessional contributions, will have excess non-concessional contributions.
If you are under 65, you may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future year caps. This is known as the ‘bring forward’ arrangement.
From 1 July 2017, the non-concessional contributions cap amount that you can bring forward and whether you have a two or three year bring forward period will depend on your total superannuation balance. Your total superannuation balance is determined at the end of 30 June of the previous financial year in which the contributions that triggered the bring forward, were made.
For 2017-18 onwards to access the non-concessional bring forward arrangement:
- The individual must be under 65 years of age for one day during the triggering year (the first year).
- They must contribute more than the annual cap ($100,000 for the 2017-18 financial year).
- The difference between the general transfer balance cap ($1.6 million for the 2017-18 financial year) and their total superannuation balance must be greater than the general non-concessional contributions cap ($100,000 for the 2017-18 financial year) at the end of 30 June of the previous financial year. For the 2017-18 financial year this means that they must have a total superannuation balance less than $1.5 million to be able to access the bring forward arrangement.
- For 2017-18 onwards the remaining cap amount for years two or three of a bring forward arrangement is reduced to nil for a financial year if their total superannuation balance is greater than or equal to the general transfer balance cap at the end of 30 June of the previous financial year.
How the bring forward arrangement works:
- If the difference between the general transfer balance cap and the individual’s total superannuation balance is between one and two times the general non-concessional contributions cap for the first year – the amount is twice the general non-concessional contributions cap over a two year period.
- If the difference between the general transfer balance cap and the individual’s total superannuation balance is greater than two times the general non-concessional contributions cap for the first year – the amount is three times the general non-concessional contributions cap over a three year period.
For the 2017-18 year the following table represents the bring forward arrangement for the first year.
|Total superannuation balance on 30 June 2017||Non-concessional contributions cap for the first year||Bring forward period|
|Less than $ 1.4 million||$300,000||3 years|
|$1.4 million to less than $1.5 million||$200,000||2 years|
|$1.5 million to less than $1.6 million||$100,000||No bring forward period, general non-concessional contributions cap applies|
If an individual has made a non-concessional contribution in the 2015-16 or 2016-17 financial years and that triggers the bring forward, but has not fully used their bring forward before 1 July 2017, transitional arrangements will apply so that the amount of bring forward available will reflect the reduced annual contribution caps.
Reduction of concessional (pre-tax) contributions cap to $25,000 per annum
Currently, individuals can make concessional (pre-tax) contributions up to $30,000 ($35,000 for people 50 years old and over) within a financial year.
From 1 July 2017, the government will lower the annual concessional contributions cap to $25,000 for all individuals. The cap will index in line with wages growth.
The intent of this change is to better target tax concessions to ensure the super system is equitable and sustainable.
Carry-forward concessional contributions of unused caps over five years
From 1 July 2018, individuals will be able to make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. They will be able to access their unused concessional contributions cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
The first year in which you can access unused concessional contributions is the 2019-20 financial year.
The intent of this change is to improve the flexibility of the super system.Improving the integrity of retirement income streams
Transition to retirement income streams (TRIS) are currently available to assist individuals to gradually move to retirement by accessing a limited amount of super. Currently, where a member receives a TRIS, the fund receives tax free earnings on the super assets that support it.
From 1 July 2017, the government will remove the tax-exempt status of earnings from assets that support a TRIS. Earnings from assets supporting a TRIS will be taxed at 15% regardless of the date the TRIS commenced.
Members will also no longer be able to treat super income stream payments as lump sums for taxation purposes.
The intent of this change is to ensure that TRIS are not accessed primarily for tax purposes but for the purpose of supporting individuals who remain in the workforce.
- LCG 2016/D10: Superannuation reform: defined benefit income streams – non commutable, lifetime pensions and lifetime annuities
Removal of anti-detriment payment
Currently, the anti-detriment provision enables a fund to claim a deduction in their tax return for a top-up payment made as part of a death benefit payment where the beneficiary is the dependant of the person. The top-up amount represents a refund of a member’s lifetime super contribution tax payments into an estate. From 1 July 2017, the Government is removing this provision and super funds will no longer be able to claim this deduction. This change will ensure consistent treatment of lump sum death benefits across all super funds.
Super funds may claim a deduction for an anti-detriment payment as part of a death benefit if a fund member dies on or before 30 June 2017. The fund has until 30 June 2019 to pay the benefit. Funds cannot include anti-detriment payments as part of a death benefit if the member dies on or after 1 July 2017.
Innovative retirement income stream products
Currently there are rules restricting the development of new retirement income products.
From 1 July 2017, the Government will remove these barriers by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.
The intent of the change is to provide greater choice and flexibility for retirees to manage the risk that they outlive their retirement savings.
Further information will be published when it becomes available.Co-contributions
Currently to receive a Government Co-contribution you must ;
- have made one or more eligible personal super contributions to your super account during the financial year
- pass the two income tests (income threshold and 10% eligible income tests)
- be less than 71 years old at the end of the financial year
- not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
- lodge your tax return for the relevant financial year.
From 1 July 2017 you must also have a total superannuation balance less than the general transfer balance cap ($1.6 million for the 2017-18 financial year) at the end of 30 June of the previous financial year and must not have contributed more than your non-concessional contributions cap.
- Consult your financial adviser.
- The ATO is working closely with Treasury to design and implement these changes. Information and fact sheets about these changes can also be found on Treasury’s websiteExternal Link.