The 2016-17 Federal Budget included some of the biggest changes to superannuation since 2007. Currently these changes are only proposed, but if they do go ahead here's some ways they could affect you.
Budget changes that could affect your super:
1. $1.6 million superannuation transfer balance cap
From 1 July 2017, the total amount of super you can transfer from accumulation to pension phase will be capped at $1.6 million. If you have more than this amount in the pension phase on 1 July 2017, you’ll need to reduce it by either transferring the excess back into accumulation phase or withdrawing the excess amount from superannuation.
2. Personal contribution caps
Personal contributions are any extra payments you make to your super fund using after-tax money. From 3 May 2016, the most you can contribute in a lifetime is $500,000. The $500,000 lifetime cap will include any after-tax super contributions you've made since 1 July 2007.
If you’ve already contributed more than $500,000 from your after-tax pay, don't worry. The money is still yours and can stay in your super but you can’t make any more after-tax contributions.
3. Pre-tax contribution cap
If you contribute to your super from before-tax income, from 1 July 2017 the most you can contribute is $25,000 a year.
However, from 1 July 2017 if you have less than $500,000 total in your super fund(s), and you haven't reached your $25,000 a year limit over five consecutive years, you’re allowed to make ‘catch-up’ payments.
4. Claiming tax deductions on your super
Anyone under 75 will be able to claim a tax deduction for personal contributions to super up to the concessional contribution cap ($25,000 per year) from 1 July 2017.
Note: The concessional contribution cap includes the 9.5% Superannuation Guarantee contribution that your employer pays into your super, and will attract a 15% contributions tax.
Changes for pre-retirees and retirees:
- Removal of work tests: If you’re between 65 and 74 years of age, you don’t need to meet work test requirements to make before or after tax payments to super from 1 July 2017.
- Transition to retirement tax: If you have a Transition to Retirement (TTR) account, any investment earnings you make on assets will be taxed at 15% until you meet a condition of release, starting from 1 July 2017.
Considerations for higher and lower income earners:
- Lower income earners
Those who earn less than $37,000 a year should receive a Low Income Super Contribution of $500 per year. This scheme will be called the Low Income Super Tax Offset.
If your spouse is under 75 years old and earns less than $37,000 a year, you can add to your spouse’s super and also receive a Low Income Spouse Tax Offset of up to $540 per year as of 1 July 2017.
- Higher income earners
If your income plus your before-tax super contributions reach $250,000, you'll be taxed at 30% on your non-excessive concessional contribution as of July 1 2017. Previously the limit was $300,000.
Know where you stand with the government's proposed budget changes. Check your super today in NetBank or call an Essential Super Specialist on 13 4074.