UPDATED SUPERANNUATION REFORMS
Four months after the May 2016 Federal Budget was handed down, we are seeing legislation being tabled to enact the measures announced. It was always going to be a case of compromise winning in a ‘triumph of experience over hope’ (apologies to Oscar Wilde for the inversion) and none more than in the superannuation space.
This edition highlights the ‘version 2’ superannuation announcements.
De-capitated
The deeply unpopular lifetime cap of $500,000 on non-concessional contributions will not see the light of day. The government proposes to replace it with an annual, non concessional contribution cap of $100,000 commencing 1 July 2017. The current cap of $180,000 will run until 30 June 2017 and those eligible are able to contribute up to $540,000 before 30 June 2017.
The ability to bring forward non-concessional contributions (being up to $300,000 over a three year period given the proposed contribution limit) will be retained for individuals under age 65, in recognition of the fact that people often make contributions on a lump sum basis
$1.6M Question
The $1.6m cap on pension balances has been modified into a cap non concessional contributions individuals can make over their lifetime. The proposal will mean that once a super balance reaches $1.6m, no further non concessional contributions will be permitted. The account balance threshold will be tested as at 30th June of the previous financial year.
The cap amount will be subject to indexation in increments of $100,000, in line with movements in inflation.
Those Over 65
The budget proposed the removal of the “work test” for those over 65. This proposal has been abandoned and the need for individuals aged 65 and over to meet a ‘work test’ has been reinstated. Those over 65 must be in gainful employment of 40 hours in any consecutive 30 day period to be eligible to make superannuation contributions.
The good news is however, that, at this stage, it appears that the removal of the ‘10% work test’ used to determine eligibility to make pre-tax contributions to super will be abolished. This will open up a range of planning opportunities for many people.
Proposals still in train
It is worth noting that a number of the 2016 Budget superannuation measures remain unchanged, specifically;
The reduction in the concessional contribution cap to $25,000 from 1 July 2017.
The $1.6 million balance limit for tax-free earnings within the pension phase.
Applying tax on earnings for benefits supporting a Transition to Retirement pension.
A reduction of the contributions surcharge income threshold to $250,000 (from $300,000).
Greater access to ‘Spouse Contribution Rebate’ by the increase in the income test from $10,800 to $37,000.
Planning opportunities
The recent amendments present a real opportunity for individuals who may have otherwise have been restricted from further non-concessional contributions under the original proposals.
As the majority of changes will not take place until 1 July 2017 (or later), we will consider the best strategies to implement during the course of the 2016/17 in light of these measures.
We will be in contact with you over the upcoming months to determine an appropriate course of action in light of the changes. We however need to wait and see the ‘devil in the detail’ from draft legislation. Importantly, this does not change our view that superannuation still remains a highly effective savings and investment structure.
Disclaimer
The information provided in this Newsletter is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on information, you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.