Understanding the Changes to Superannuation in the 2016 Federal Budget

Written on the 23 May 2016 by Dean McKinnon

The recent Federal Budget handed down on May 3, 2016 contained major changes to superannuation.

Superannuation can be confusing at the best of times and usually we don't try or feel the need to understand it until we are getting closer to retirement. For some, retirement and superannuation access is a long way into the future, however #everyoneneedsaplan to understand how superannuation will affect their future lifestyle.

For most people, the question is 'How will these changes affect me?'

In this article we will work through the various changes, how they affect you and what you need to do if anything. We also strongly suggest that you contact your accountant or financial advisor if you have any questions regarding the proposed changes to Superannuation.

 

So how do the changes affect you?

 

Terminology

Terminology for Superannuation can be confusing. Our Tech Speak page on our website explains in more detail various terms used, click on each link below to read a more detailed explanation of what it means and if it applies to you.

 

Personal Superannuation Contributions

Non-Concessional Superannuation Contribution

Retirement Income Streams

Superannuation Transfer Cap

Concessional Cap

 

When will the changes take affect?

The proposed changes will take affect from July 1, 2017 EXCEPT for the Non-Concessional Contributions which will change from May 3, 2016

 

There are 6 areas of superannuation where changes will be made

 

1. Tax deductions for Personal Superannuation Contributions

 

Effective date: July 1, 2017

FromJuly 1, 2017 all individuals under the age of 75 will be able to claim an income tax deduction for personal superannuation contributions. This will apply to all individuals who are employed full or part-time on a wage or salary.

 

2. Changes to High Income Earners

 

Effective date: July 1, 2017

Previously if your combined income and superannuation contributions was above $300,000 an additional tax rate on your superannuation was imposed. The additional tax rate effectively changed the tax rate on superannuation contributions from 15% to 30%.

Under the proposed changes, this threshold for additional tax will be lowered from $300,000 to $250,000.

 

3. Non-Concessional Contributions New lifetime cap

 

Two dates you need to remember July 1, 2007 and May 3, 2016.

Non-concessional contributions are contributions made to your superannuation from your after tax income.

Previously the annual non-concessional amount for those over 65 years was capped at $180,000 per year. Those under 65 were entitled to contribute up to $540,000 over a 3 year period.

As of May 3,2016 the proposed lifetime cap will be $500,000 and this amount will take into account any non-concessional contributions made on or after July 1, 2007.

If the lifetime cap of $500,000 is exceeded, the Australian Taxation Office will notify you and you will need to withdraw the excess from your superannuation fund. This will not apply if you have already exceeded the $500,000 cap prior to May 3, 2016.

 

4. Transition to Retirement Income Streams (TRIS) Earnings will be taxed

 

Effective date: July 1, 2017

Currently, investment earnings on TRIS to support an income stream were tax free.

Members who were over 60 years of age also received their TRIS payment tax fee.

If the fund was not paying an income stream, the investment earnings would be taxed at 15% in the fund.

From July 1, 2017, investment earnings used to support an income stream will be taxed at 15%.

HOWEVER

For members over 60 years of age the TRIS payment will continue to be tax free.

 

NOTE: Self managed superannuation funds will to be tax exempt on earnings for the financial years ending June 30, 2016 and June 30 , 2017.

 

5. Introduction of $1.6 Million Superannuation Transfer Cap

 

Effective date: July 1, 2017

Currently, providing the fund had sufficient assets, there was no limit on the amount of superannuation that you could use to commence an Income Stream.

From July 1, 2017, there will be a cap of $1,600,000 on the maximum amount that can be placed into an income stream and receive concessional tax treatment on the investment income.

• If you are under 60 and still working and have an income stream with a balance in excess of $1,600.000 you will need to reduce it to $1,600,000 by July 1, 2017. Excess balances and investment earnings will be taxed at 15% (10% for capital gains).

• If you are over 60 and retired from the workforce you will be able to access your superannuation balance via a lump sum withdrawal which will be TAX FREE when paid to the member.

 

6. Reduction of the concessional cap to $25,000 per year

 

Effective date: July 1, 2017

Currently there are two annual contribution caps depending on your age:

Aged 48 or under at June 30, 2015 - cap $30,000

Aged 49 or over at June 30, 2015 - cap $35,000

As of July 1, 2017 the cap will be reduced to $25,000 per year.

HOWEVER

If your member balance is below $500,000 from July 1, 2017, you will be allowed to accrue any unused portion of your annual concession cap and carry it forward on a rolling basis for 5 consecutive years. This is to allow people the opportunity to catch up their concessional contributions in the future.

 

Still Confused?

As you can see, Superannuation is a complex area and is not just a matter of relying on the Employer Superannuation Guarantee payment. Again, we would strongly advise that you discuss your financial situation with your accountant or financial advisor to ensure that you are fully aware of changes which may affect you. We also advise that you seriously consider a financial plan which will provide a comfortable future and give you peace of mind.

 

If you would like any further information or a free financial assessment, please contact Dean at MCKFS www.mckfs.com.au/contact-us.html to arrange a no obligation appointment.

#everyoneneedsaplan for a secure financial future.