Federal Budget 2016 superannuation changes - what you need to know.

Product updates

5 May 2016

On 3 May 2016, the Government announced the 2016 Federal Budget. Treasurer Scott Morrison presented the budget as helping low to middle income earning Australians and small businesses, with a focus on changes to tax and superannuation.

Subject to the proposals being implemented by legislation the major announcements for super are:

1. A $1.6 million superannuation transfer to income stream balance cap will apply from 1 July 2017

From 1 July 2017, the government will introduce a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the retirement (income stream) phase.

Members already in the retirement phase, with balances above $1.6 million, will be required to reduce their retirement balance to $1.6 million by 1 July 2017, by either transferring the excess back into an accumulation superannuation account or withdrawing the excess amount from their superannuation.

What does this mean for you?

If implemented, from 1 July 2017, if your pension balance is over $1.6 million you will need to either transfer the excess amount in a superannuation accumulation account, or withdraw the excess funds. After this date, if your balance is over $1.6 million, you will be subject to a tax on both the amount in excess of the cap and the earnings on the excess amount, similar to the tax treatment that currently applies to excess non-concessional contributions.

2. Lifetime cap for non-concessional superannuation contributions

Effective from 7.30pm on 3 May 2016, a $500,000 lifetime non-concessional contributions cap will now apply for all Australians under the age of 75. This replaces the current non-concessional cap of $180,000 per year (or $540,000 every 3 years if aged under 65).

This new cap will take into account all non-concessional contributions made on or after 1 July 2007.

What does this mean for you?

Subject to the passing of legislation, from 3 May 2016, if you exceed the new lifetime non-concessional contribution cap of $500,000, you will be notified by the ATO to withdraw the excess from your superannuation account. If you do not withdraw you will be subject to the current penalty arrangements for excess non-concessional contributions.

If you have exceeded the new cap already prior to commencement, you will already have been taken as having reached the lifetime cap and will not be required to withdraw the excess from your superannuation account.

3. Concessional contributions caps reduced to $25,000

Currently, a contribution cap applies to concessional contributions of $30,000 ($35,000 for individuals aged 50 and over).

From 1 July 2017, the concessional contribution cap will reduce to $25,000 for ALL customers.

What does this mean for you?

If implemented, you will only be able to contribute a maximum of $25,000 in concessional contributions in a financial year. If you exceed this cap, you may be liable for excess concessional contributions tax.

4. Tax deductibility of personal superannuation contributions

From 1 July 2017, all individuals up to the age of 75 will be able to claim an income tax deduction for personal superannuation contributions.

What does this mean for you?

Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10 per cent of their income from salary or wages. From 1 July 2017, if legislated, all individuals, regardless of their employment circumstances will be able to make concessional contributions. Remember that the government has also proposed to reduce the concessional contributions cap to $25,000 as explained above.

5. Higher Income Earner Contributions tax threshold reduced to $250,000

The ‘income’ threshold at which the 30% rate of tax applies to an individual’s taxable concessional contributions will be reduced from $300,000 to $250,000 from 1 July 2017.

What does this mean for you?

If implemented, from 1 July 2017, if you are earning more than $250,000, you may be subject to an additional 15% contributions tax on your non-excessive concessional contributions – making the total tax rate 30%. Your earnings include your combined income and concessional contributions as well as some other adjustments including reportable fringe benefits and net investment losses made in a financial year.

6. Catch-up concessional contributions for those with balances under $500,000

From 1 July 2017, the government will allow individuals with superannuation balances under $500,000, who have not reached their concessional contributions cap in previous years, to make additional concessional contributions.

The government is now proposing that unused concessional contributions cap amounts accrued from 1 July 2017 will be able to be carried forward on a rolling basis for a period of five consecutive years.

What does this mean for you?

If implemented, from 1 July 2017, you will have the ability to contribute further concessional contributions if you have a superannuation balance under $500,000 and have unused contribution caps amounts from the previous five years.

7. Low income superannuation contribution replaced with Low Income Superannuation Tax Offset

From 1 July 2017, the government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce tax on superannuation contributions for low income earners, replacing the low income superannuation contribution (LISC).

What does this mean for you?

If you have an income up to $37,000, a LISTO may apply to eligible low income earners making concessional contributions up to capped amount of $500.

8. Work test for contributions eligibility removed for those aged 65 to 74

From 1 July 2017, the government will remove the ‘work test’ which currently limits the ability of individuals aged 65 to 74 to make superannuation contributions.

What does this mean for you?

If implemented, from 1 July 2017, the rules that limit the ability of working Australians aged under 75 to make contributions to their own or their spouse’s superannuation will change. The contributions acceptance rules will be amended to:

Remove the requirement that an individual aged 65 to 74 must meet a work test before making voluntary or non-concessional contributions to superannuation

Allow individuals to make contributions to a spouse aged under 75 without the need for the spouse to meet a work test.

9. Removal of anti-detriment concession for death benefits

The tax deduction available to funds which pay an ‘anti-detriment payment’ as part of a death benefit paid to certain eligible beneficiaries will be removed from 1 July 2017. The anti-detriment payment represents a refund of the tax paid by the deceased on super contributions over their lifetime.

What does this mean for you?

If implemented, from 1 July 2017, the anti-detriment payment (tax savings amount) will no longer be added to death benefit payments to a spouse or child.

10. Integrity of income streams: TTR earnings to be taxed, lump sum versus income stream payment election to be removed

Currently, a fund is entitled to a tax exemption in respect of earnings it derives on assets supporting a current Transition to Retirement income stream. From 1 July 2017, the government will remove the tax exemption for any earnings supporting a transition to retirement (TTR) income stream.

What does this mean for you?

Currently, the earnings for Transition to Retirement accounts are not subject to tax. Subject to the passing of legislation, from 1 July 2017, the earnings for Transition to Retirement accounts will be taxed at 15%.

11. Integrity of income streams: lump sum payment election to be removed

Currently individuals can elect to receive income streams as either a lump sum for tax purposes. These payments are then received tax free provided they are within the low rate cap (currently $195,000). The proposal is to remove this election. At this stage, it is not clear from the budget papers if this will apply solely to transition to retirement income streams or for all income streams.

What does this mean for you?

Currently, individuals are able to elect that certain superannuation income stream payments be treated as a lump sum for tax purposes. As a result of the removal of the tax exemption, individuals will no longer be able to make this election. It has been indicated that this change may also apply from 1 July 2017.

12. Low Income spouse superannuation tax offset: eligibility expanded

From 1 July 2017, access to the low income spouse superannuation tax offset will be expanded, by increasing the income threshold for the low income spouse from $10,800 to $37,000.

What does this mean for you?

More customers will now be able to take advantage of the low income spouse offset. The offset will continue to be set at 18 per cent of the amount of eligible contributions, capped at $540 per year. The offset will be gradually reduced for income above this $37,000 and will completely phase out at income above $40,000.

13. Other changes

Some of the other measures announced by the government:

Retirement income products: availability of tax exemption extended to deferred lifetime annuities and group self-annuitisation products

Currently, a tax exemption applies for earnings derived by funds on assets supporting current pension (income stream) liabilities. This exemption does not apply for products such as deferred annuities.

The government is now proposing that the tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products from 1 July 2017. The government will also consult on how these new products are to be treated under the Age Pension means test.

Increased funding for the Superannuation Complaints Tribunal

The government has confirmed that the SCT will receive additional funding of $5.2 million in 2016/17, including $2.7 million in capital funding, to reduce the backlog of complaints and improve internal processes.

APRA: additional funding to modernise data capabilities

The government will provide $9.7 million over three years from 2016/17 to modernise APRA’s data collection and dissemination systems.

The government will also provide $11.2 million over four years from 2016/17 to support the maintenance and operation of the new systems.

ASIC: additional funding to enhance consumer protection, the move to an industry funding model, and review of disputes resolution and complaints bodies

On 20 April 2016, the government announced a package of measures to better protect consumers and strengthen ASIC, including additional funding, the implementation of an industry funding model and a review of the effectiveness of the current dispute resolution and complaints schemes in the financial services sector.

What does this mean for you?

There is no immediate impact to customers as a result of these announcements.