What you need to know
There are some important changes coming to superannuation in 2017. The changes improve the fairness, sustainability, flexibility and integrity of the superannuation system.
What are the changes?
Introducing the transfer balance cap
From 1 July 2017, there will be a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax–free retirement phase. Subsequent earnings on balances in the retirement phase will not be capped or restricted.
Transitional arrangements will apply. People already retired with balances below $1.7 million on 30 June 2017 will have 6 months from 1 July 2017 to bring their retirement phase balances under $1.6 million.
Savings beyond this can remain in an accumulation account (where earnings are taxed at 15 per cent) or outside the superannuation system.
The transfer balance cap will be indexed and will grow in line with CPI, meaning the cap will be around $1.7 million in 2020–21.
Reforming the taxation of concessional superannuation contributions
From 1 July 2017, the threshold at which high income earners pay additional contributions tax (Division 293) will be lowered from $300,000 to $250,000.
The Government will also reduce the annual cap on concessional (before–tax) superannuation contributions to $25,000 (currently $30,000 for those aged under 49 at the end of the previous financial year and $35,000 otherwise).
Lowering the annual non–concessional contributions cap
From 1 July 2017, the Government will lower the annual non–concessional contributions cap to $100,000 and will introduce a new constraint such that individuals with a balance of $1.6 million or more will no longer be eligible to make non–concessional contributions. As is currently the case, individuals under age 65 will be eligible to bring forward up to 3 years of non–concessional contributions.
This is in place of the $500,000 lifetime non–concessional contributions cap announced in the 2016–17 Budget.
Introducing the Low-Income Superannuation Tax Offset (LISTO)
From 1 July 2017, the Government will replace the Low-Income Superannuation Contribution (LISC) with the Low-Income Superannuation Tax Offset (LISTO).
Improving access to concessional contributions
From 1 July 2017, the Government will allow all individuals under the age of 65, and those aged 65 to 74 who meet the work test, to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.
Allowing catch–up concessional contributions
From 1 July 2018, the Government will help people ‘catch–up’ their superannuation contributions by allowing individuals with a total superannuation balance of less than $500,000 just before the beginning of a financial year to carry forward unused concessional cap space (for up to 5 years) to use if they have the capacity and choose to do so.
Extending the spouse tax offset
The Government will make the current spouse tax offset available to more couples so they can support each other in saving for retirement.
Removing barriers to innovation in retirement income stream products
From 1 July 2017, the Government will extend the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self–annuitisation products.
Improving the integrity of transition to retirement income streams
The Government will remove the tax exempt status of income from assets supporting TRIS. These earnings will now be taxed concessionally at 15 per cent. Individuals will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.
This will help ensure that TRIS are fit for purpose and not used as a tax minimisation strategy.
Abolishing the anti–detriment rule
From 1 July 2017, the Government will remove the anti-detriment provision which allows superannuation funds to claim a tax deduction for a portion of the death benefits paid to eligible dependants. This provision is outdated and inconsistent with other parts of the tax law.
Streamlining administrative processes
From 1 July 2017, the Government will:
- clarify that the Commissioner of Taxation can issue taxpayers with a single notice for all of their tax liabilities in a financial year;
- remove the compulsory obligation for superannuation providers to calculate an end benefit cap for certain defined benefit members; and
- align the objection rights that apply to discretionary decisions made by the Commissioner in respect of non-concessional contributions with the objection rights that apply to discretionary decisions in respect of concessional contributions.
From 1 July 2018, the Government will replace the existing release authority arrangements with standardised timeframes and processes, and introduce a default process for individuals who do not make an election (or who wish to undertake the default process) when dealing with all release amounts from superannuation.
Who is affected and who will benefit from these changes?
Only 4 per cent of Australia’s 16 million superannuation account holders will be adversely affected by the Government’s changes to superannuation.
Around 25 per cent of fund members are expected to benefit from the superannuation package.