Changes to superannuation legislation was a key focus of the 2016 / 2017 Federal Budget. The purpose of this article is to help explain some of the key changes and how they may apply to you.
- Changes to concessional contributions
Concessional contributions are contributions made into superannuation for which a tax deduction is claimed; such as superannuation guarantee contributions (SGC) or salary sacrifice contributions.
From 1 July 2017, the concessional contributions cap will be reduced to $25,000 pa (indexed) for everyone, regardless of age.
On the positive side, individuals who have total superannuation savings of less than $500,000 who do not fully utilise the cap each year can carry forward the unused cap on a rolling five-year basis starting from 1 July 2018.
The cap is currently $30,000 per annum under age 50 and $35,000 for 50 and over.
- Reduction of the non-concessional contributions (NCC) cap
Non-concessional contributions are made from after tax money, and are contributions for which no tax deduction has been claimed.
A cap of $100,000 pa per person will apply. If the individual is under age 65 the 3-year bring forward rule can be utilised, thus contributing up to $300,000.
For the 2016-17 financial year the existing limit of $180,000 per annum, or $540,000 3-year limit, can still be used. In order to access the full $540,000 limit, however, the individual must fully utilise this amount this financial year otherwise transitional bring forward rules will apply. If an individual has not fully used their bring forward limit before 1 July 2017, the remaining bring forward amount will be reassessed to reflect the new annual caps.
If the individual’s super balance is $1.6 million or greater then no further non-concessional contributions can be made. This restriction only applies to non-concessional contributions.
Previously individuals could make non-concessional contributions of up to $180,000 pa into their superannuation, with the ability of bringing forward two years’ allowances (i.e. $540,000 worth of contributions in total) if the individual is under age 65.
- Introduction of a pension transfer cap of $1.6 million
A $1.6 million transfer balance cap on the total amount of super an individual can transfer into retirement accounts will apply. The cap will apply to current retirees and individuals yet to enter retirement.
Retirees with balances above $1.6m will be required to reduce their balance to the cap by the effective date by transferring any excess back to accumulation or withdrawing the excess from super. If not transferred, excess tax will be applied at 15% initially and 30% for subsequent breaches of the cap.
The cap will index in increments of $100,000 in line with CPI.
There was previously no limit on the amount individuals could accumulate in pension phase.
A summary of all the reforms and when each measure will take effect from is provided in the table below.
Are you confused about these Superannuation budget changes? For your free initial consultation call our office today, toll free on 1800 679 000 for our Rockhampton office and 1800 804 431 for our Melbourne office. One of our friendly advisers would be delighted to speak with you.
Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s Individual objectives, financial situation or needs. Before acting on anything in this article you should consider if it is appropriate for you, having regard to your objectives, financial situation and needs.