Legislation that was recently enacted (The Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016) will be the first real shake-up to our superannuation system in a decade. The new superannuation regime which comes into effect on 1 July 2017 contains a hoard of changes that will affect the taxation of millions of Australians’ retirement income but those contributing extra to superannuation and the wealthier will be impacted the most.
Here are some of the key changes.
Changes affecting contributions
- Annual concessional (before-tax) contributions cap will reduce to $25,000 p.a. for everyone
Workers making additional superannuation contributions should be mindful of this change as it will impact on how much extra they top up. The concessional contributions cap is currently $30,000 p.a. for those aged under 50 and $35,000 for those aged over 50.
On 1 July 2017, the pre-tax concessional cap will reduce to $25,000 p.a. for every working Australian.
- The annual non-concessional (after-tax) contributions will reduce to $100,000 p.a.
The cut in the annual non-concessional contributions cap from $180,000 to $100,000 will affect people who get a windfall such as a large amount of money from an inheritance.
- You can claim an income tax deduction on any non-concessional (after-tax) contributions you make into super.
Individuals who are self-employed or mainly self-employed and are under 75 years of age should be mindful of this change as they can claim an income tax deduction on any non-concessional contributions they make into super.
To access the tax deduction, individuals will need to lodge a ‘Notice of Intent to Claim a Tax Deduction for Personal Super Contributions’ with their superannuation provider. Individuals aged between 65 and 75 will also need to satisfy the ‘Work Test’. The Work Test for superannuation determines your eligibility to make personal superannuation contributions if you are aged 65 and over and less than 75.
It is important to note that the contributions that self-employed individuals make into their super from their after-tax salary and the tax deduction they claim will be included in their annual concessional contributions cap and be subject to the 15% contributions tax in the super fund.
Changes affecting people nearing retirement and retirees
- Introduction of a $1.6 million transfer balance cap
This will impact higher wealth individuals, a small percentage of the Australian population.
Under the current superannuation regime, the amount you can transfer from a super accumulation account into or hold in a tax-free retirement income product is unlimited.
On 1 July 2017, the maximum amount of accumulated super you can transfer into or hold in a tax-free retirement income product will be $1.6 million.
- Change to 30% tax rate for concessional super contributions (Division 293) and income threshold will reduce to $250,000 p.a.
An extra 15% contributions tax on concessional super contributions made by individuals earning more than $250,000 p.a. will result in more Australians being slugged with a tax hike.
Under the current superannuation regime, the income threshold is $300,000 p.a. and attracts a Division 293 tax of 15%.
On 1 July 2017, the income threshold will reduce to $250,000 p.a. and you will pay 30% tax on your concessional superannuation contributions.
A comfortable retirement comes at a price and it is important to stay informed with the changes to superannuation. Seeking professional financial advice from a licensed financial adviser on how to best manage your superannuation could be invaluable as many of these changes are complex and personal or financial circumstances differ from individual to individual.