A raft of new superannuation rules take effect 1 July 2017.
See below for the main points and a video, or read the April 2017 edition of Super Direction for more information about these changes and things to consider.
Pension balances capped at $1.6 million
From 1 July 2017, there is a $1.6 million transfer cap on the total amount of superannuation you can transfer into the tax‑free retirement phase. Future earnings on balances in the retirement phase will not be capped or restricted.
Savings beyond $1.6 million can remain in an accumulation account, where earnings are taxed at 15 per cent. Existing retirees need to bring their pension balances under $1.6 million before 1 July 2017.
The transfer balance cap will be indexed in line with CPI, so the cap is forecast to be about $1.7 million in 2020‑21. There are alternative ways to supplement your retirement savings.
Non‑concessional contributions cap cut to $100,000
From 1 July 2017, the annual non‑concessional contributions cap is reduced to $100,000, down from the current cap of $180,000.
Individuals with a balance of more than $1.6 million can no longer be eligible to make non‑concessional contributions. As is currently the case, those under age 65 will be able to bring forward three years of non‑concessional contributions.
If you have brought forward contributions in 2015/16 or 2016/17, transitional arrangements will apply.
This policy replaces the proposed $500,000 lifetime cap on non‑concessional contributions announced in the 2016‑17 Budget.
Concessional contributions cap cut to $25,000
Annual limits on before-tax contributions reduce to $25,000 for everyone from 1 July 2017. This is reduced from the current cap of $30,000 for most workers and $35,000 for those aged over 50.
Concessional contributions include the Superannuation Guarantee from your employer, salary sacrifice contributions and any contributions that you claim as a tax deduction.
More super tax on high-incomes
People with adjusted taxable income of over $250,000, including any concessional contributions, pay 30% tax on their concessional contributions from 1 July 2017.
Before that date only those with an adjusted taxable income of more than $300,000 pay the higher rate of 30%. The higher tax rate only kicks in if your adjusted taxable income exceeds $250,000. Even at the higher rate, super still offers a discount of about 17% compared to the highest marginal tax rate.
Transition to retirement changes
The Government is removing the tax exempt status of income from assets supporting a transition pension. However, transfers to a transition pension will not count towards the pension transfer cap, as they don’t benefit from tax-free earnings
Individuals will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.
Catch‑up concessional contributions
Those with account balances of $500,000 or less will be able to rollover up to five years of unused concessional caps. This measure has been delayed by one year and will now come into effect on 1 July 2018.
The measure is designed to help those who take time out of work, whose income varies considerably from one year to the next, or whose circumstances have changed and are in a position to increase their contributions to superannuation.
If you’re not in a position to make concessional contributions of up to $25,000 a year, you may be able to take advantage of the carryover rules when your income is higher.
Introducing the Low Income Superannuation Tax Offset (LISTO)
From 1 July 2017, the Low Income Superannuation Contribution (LISC) is replaced by the Low Income Superannuation Tax Offset (LISTO).
The LISTO effectively refunds the tax paid on concessional contributions by individuals with adjusted taxable income of up to $37,000 – up to a cap of $500.
Widening access to concessional contributions
From 1 July 2017, the Government allows all individuals under the age of 65, and those aged 65 to 74 who meet the work test, to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.
Previously, an income tax deduction for personal superannuation contributions was only available to people who earn less than 10 per cent of their income from salary or wages.
Extending the spouse tax offset
The Government will make the current spouse tax offset available to more couples so they can support each other in saving for retirement.
Currently, a tax offset of up to $540 is available for individuals who make superannuation contributions to their spouses with incomes up to $13,800. Under the new rules the offset will be extended to those whose recipient spouses earn up to $40,000.
The spouse receiving the contribution must be under age 70 and meet a work test if they are aged between 65 and 69.
Abolishing anti‑detriment payments
From 1 July 2017, the anti-detriment provision which allows superannuation funds to claim a tax deduction if they pay an additional amount on top of a death benefit paid to eligible dependants no longer applies. This effectively means that funds will no longer pay this additional amount.
2017-18 Federal Budget
In addition to these changes mentioned above, the 2017-18 Federal Budget proposes using super as a tool to help tackle issues of housing affordability and supply. Two significant initiatives intertwine home ownership with the tax-advantaged power of super.
Super savings boost for first home buyers
The ‘First Home Super Savings Scheme’ uses the tax advantages of super to help first home buyers. From 1 July 2017 you’ll be able to use your super to turbocharge your saving for a home deposit by contributing pre-tax earnings into your super fund, up to a $30,000 total limit. The limit in any one year is $15,000. Bear in mind the $25,000 concessional cap may limit how much you can put in, depending on how much you earn, as your 9.5% employer contribution eats into this cap.
These contributions and the earnings they generate are taxed at the favourable rate of 15%. When you buy your first home, these contributions can be withdrawn to help fund the deposit. In addition, this measure allows you to withdraw an additional amount of your balance calculated at a rate stated by the government, to account for earnings within your fund.
Withdrawals - which can be made any time after 1 July 2018 - will be taxed 30% below your marginal tax rate. The Treasurer says the boost provided by super over a typical deposit account in this way will accelerate savings by ‘at least 30%’. Couples saving for a home can tip in $60,000 jointly into super to reach their deposit goal.
The government gives an example of how the scheme can work:
Michelle earns $60,000 a year. Using the scheme she salary sacrifices $10,000 of her pre-tax income into her superannuation account, boosting her balance by $8500 after the 15% contributions tax. After three years, she can withdraw $27,380 plus earnings on those contributions, paying tax of $1620, leaving her with $25,760 for her deposit. That works out to about $6240 more than if she had saved in a standard deposit account.
Super incentive for boomers to downsize
At the other end of the housing chain, homeowners aged 65 and over will be incentivised to trade down to a smaller home. The thinking behind this idea is to free up housing stock that can have a knock-on impact right down the chain, by encouraging empty nesters to ‘right-size’ their home.
Boomers will be able to make a non-concessional contribution of up to $300,000 from the sale of their principal residence into their superannuation fund, so long as they have lived in their home for at least 10 years.
The downsizing contributions will not count towards the existing contribution caps and home-owning couples will be able to take advantage of the measure from the same home to transfer up to $600,000 into super. There’s also no requirement to meet the work test.
Before taking action on any of these changes it is a good idea to get advice. You can contact an ANZ Staff Super financial adviser on 1800 000 086 who can give you limited advice on the investment options available and your investment strategy.
Whether your needs are simple or complex, an ANZ Staff Super financial adviser can help.
ANZ Staff Super has an agreement with ANZ under which ANZ’s financial advisers have been engaged to provide members with general or limited personal financial advice about options within ANZ Staff Super over the phone for no extra charge. If you require more complex personal advice, you’re given the option of receiving comprehensive personal advice from an ANZ financial adviser and ANZ will charge you a fee for this advice.
You have the option to have the fees for ANZ Staff Super-related super advice debited from your account. This facility applies only for fee for service advice provided by an ANZ financial adviser and no commissions will be paid under this facility.