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Date of article: 10 May 2016
Last updated: 10 May 2016

Federal Budget 2016-17

Overview

The Budget is set in a time of transition from the mining investment boom. This Budget sets out the Government's plan for a stronger, more diversified, new economy through:

  • planning for jobs and growth
  • tax reforms, including targeting superannuation tax concessions
  • balancing the budget and reducing Government long-term debts.

This article covers measures relating to and affecting superannuation.

The Government stated that "[t]he superannuation changes will improve the sustainability, flexibility and integrity of the superannuation system. Superannuation tax concessions will be better targeted to those who need incentives to save. The flexibility of the superannuation system will be improved, recognising that individuals have different working patterns across their lives. Confidence in the superannuation system will be increased by reducing the extent that superannuation is used for tax minimisation and estate planning purposes." Budget Paper No 1, p.1-6.

For the first time, the Government will enshrine in legislation the objective for superannuation, being to provide income in retirement to substitute or supplement the Age Pension.

Specific measures are detailed below. Most measures will have a commencement date of 1 July 2017, with the notable exception of the introduction of a lifetime non-concessionals cap that takes effect immediately.

Superannuation contributions

Introduction of a lifetime non-concessional contributions cap

A new $500,000 lifetime non-concessional contributions cap will replace the existing non-concessional contributions cap, taking effect from 7.30pm AEST on 3 May 2016.

The new lifetime cap will replace the existing annual caps, including the bring forward rules.

The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007. Contributions made before commencement date will not result in an excess. Excess contributions made after commencement will need to be removed or subject to penalty tax.

From 1 July 2017 with the removal of the work test (see below), this will provide for non-concessional contributions to be made up to age 74.

Removal of work test for contributions

From 1 July 2017, people under the age of 75 no longer be restricted from making contributions (removal of current restriction on people aged 65 to 74 from making contributions unless they satisfy the work test), and will be able to receive contributions from their spouse.

Concessional super contribution catch-up

From 1 July 2017, individuals with a superannuation balance of less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years. Unused cap amounts are carried forward on a rolling basis for a period of five consecutive years. The first year of unused amounts that can be carried forward is 2017-18 year.

Tax deduction for 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 (currently limited to those that are self-employed).

This measure effectively allows for all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. This will benefit individuals whose employer do not offer salary sacrifice arrangements, individuals who are salary earners and also self-employed, or transitioning from salary earner to being self-employed.

Reduction of Concessional contributions cap

From 1 July 2017, the annual cap on concessional contribution cap will be reduced to $25,000 (currently, the general cap is $30,000, and for those age 50 and above $35,000).

Superannuation pensions

Introduction of a $1.6 million superannuation transfer balance cap

From 1 July 2017, an individual may transfer a maximum of $1.6 million into pension phase account. The earnings on these balances will be exempt from income tax.

Where an individual accumulates amounts in excess of $1.6 million, the amount exceeding $1.6 million will remain in accumulation phase account, and be taxed at a rate of 15 per cent).

Existing pension phase accounts are not grandfathers. Individuals already in pension phase with balance above $1.6 million will be required to reduce their pension phase account balance to $1.6 million by 1 July 2017. Excess balances for these individuals do not been to be paid out by the superannuation fund, and may be transferred to the accumulation phase account.

This measure limits the tax exemption on earnings on pension phase assets to $1.6 million, and tax the earnings on amount in excess of $1.6 million at a rate of 15 per cent.

Amounts transferred in excess of the $1.6 million cap will be subject to similar tax that applies to excess non-concessional contributions.

Transition to retirement income stream, and treating income stream payments as lump sums

Currently, all earnings from assets supporting an income stream, including transition to retirement income stream, are exempt from income tax. From 1 July 2017, tax exemption on earnings from assets supporting a transition to retirement income stream will be removed. Individuals that are over the preservation age and not retired will be affected.

The Government will also remove the current anomaly in the rules which allows for individuals to treat certain superannuation income stream payment as lump sum for tax purposes.

Other measures

Spouse contributions tax offset

From 1 July 2017, the low income spouse superannuation tax offset income threshold will be increased to $37,000 from $10,800. The offset is up to $540 per annum for the contributing spouse in their personal tax (18% offset for contributions up to $3,000).

Low income superannuation tax offset

From 1 July 2007, a similar Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Super Contribution (LISC), by providing a tax offset that is based on the tax paid on concessional contributions made on behalf of low income earners up to a cap of $500.

The LISTO will apply to those with adjusted taxable income up to $37,000 that have had concessional contribution made on their behalf.

Division 293 tax on high income earners

From 1 July 2017, the Division 293 income threshold will be reduced from $300,000 to $250,000.

Removal of anti-detriment provisions

Anti-detriment provision in respect of death benefits from superannuation can provide a refund of up to the member’s lifetime superannuation contributions tax payments to their dependant beneficiaries. From 1 July 2017, the anti-detriment provision will be removed.

 

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