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The constituents for both opposition members and backbenchers have been heard and on Thursday 15 September (some 4 months after the May Federal Budget) the government has done a Backflip on some of their most aggressive super proposals (that nearly lost them the election), namely the lifetime $500,000 non-concessional cap and the removal of the work test for over 65’s.
Once legislated, most measures are expected to take effect from 1 July 2017.
The inference from this is that existing contribution rules will continue to apply until 30 June 2017.
This article has been composed within 24 hours of this breaking news and on this basis it is too early to take any immediate action. Hudson will monitor the developments in this space and advise as these proposals progress towards actual legislation. We recommend you consult with your adviser if you feel that these changes could impact you.
1… Budget Backflips – from 03 May Budget Proposal
Non-concessional Contribution Cap (NCC)
Current Legislation (before any proposed changes)
- $180,000 p.a. Cap with a provision to bring forward up to 3 years of contributions ($540,000) for individuals under age 65.
Original Federal Budget proposal (03 May 2016) – Proposed effective 03 May 2016.
- Remove the existing non-concessional contribution (NCC) cap ($180,000 p.a.)
- Remove the 3 year bring forward provision
- Replace both of the above with a lifetime limit of $500,000 with a retrospective, calculation including all historical contributions made since 1 July 2007.
New Proposal (15 September 2016) – Proposed to be effective 01 July 2017.
- Lifetime Cap of $500k has been dropped.
- Current legislated annual cap of $180,000 to be reduced to $100,000
- 3 year Bring forward provision to continue apply (now effectively reduced to $300,000) for Individuals under age 65.
Note – Individuals who have triggered the bring-forward rule prior to 1 July 2017 and have not fully utilised the current maximum amount ($540,000) will have the remaining bring-forward amount reassessed on 1 July 2017 in line with the new caps.
- $1.6 million eligibility threshold
Individuals with a total superannuation balance of more than $1.6 million at the start of a financial year (starting 30 June 2017) will not be able to make any further NCCs.
On first glance, it would appear the Federal Budget announcements on this subject have effectively been denounced and existing rules are now proposed to remain in tact for the rest of this financial year, allowing clients an opportunity to make additional larger contributions this financial year before 30 June 2017. This can be especially good news for those who had been shut out by the retrospective countback (to 2007) for the $500k Cap.
Caution – As highlighted earlier it is too early to leap into action on the back of these fresh announcements, but we do recommend you consult with your adviser if you feel that you could be impacted by these changes to plan and possibly implement a strategy before 30 June 2017.
Current Legislation (before May 2016 Federal Budget Announcements)
- Work test of 40 hours within 30 days must be satisfied for those aged 65 to 74 to be eligible to make any personal contributions to superannuation.
Original Federal Budget Proposal (03 May 2016)
- Remove the work test for individuals aged 65 to 74
New Proposal (15 September 2016)
- Retaining current legislation – work test to continue to apply age 65-74.
2…. Unchanged – from 03 May Budget Proposal
Concessional Contribution Cap
- The Government will continue with the proposal to reduce the concessional contribution (CC) cap to $25,000 for all ages from 1 July 2017.
Opportunity – Clients (above age 50) who have the capacity to fully utilise the current CC cap of for 2016/17 may wish to consider doing so before the CC cap reduces.
- $30,000 – Under age 49 (as at 30/6/16)
- $35,000 – Age 49 or more (as at 30/6/16)
Catch up concessional contributions
- The commencement date for the catch up contributions will be delayed a further 12 months until 1 July 2018. Individuals will be able to make CCs above the annual cap, where they have not fully utilised their CC cap in previous financial years. Amounts are carried forward on a five year rolling basis. Amounts not used after five years will expire. This measure is limited to individuals with a super balance of less than $500,000. There is no detail yet as to when the account balance is assessed to determine eligibility.
Increased Contributions tax of 30%
- For incomes above $250,000 (previously $300,000).
Transition to Retirement (TTR) Pensions
- NO changes to qualification for accessing a TTR pension from preservation age.
- The tax treatment of income stream payments remains unchanged i.e. for recipient’s age 60 or over the payments will be tax free, or taxed at the individual’s marginal tax rate less a 15% tax offset between preservation age and age 60.
- Tax on earnings will still apply from 1 July 2017 (per Federal Budget Proposals).
Removal of the 10% Test
- Ability for all individuals to claim a tax deduction for personal superannuation contributions with the removal of the 10% test. This effectively means that now wage earners too can make contributions to super towards the end of the Financial Year and claim a deduction (provided it is within the Concessional CAP). Previously wager earners were forced to plan ahead with Salary sacrifice throughout the year to lower their taxable income.
Abolishing Anti-detriment payments
- Refunding of contributions tax in event of death will cease (per original announcement).
$1.6 million Pension cap
- A $1.6 million cap will apply on the amount that can be transferred into the superannuation pension phase from 1 July 2017.
- There will be no restriction on subsequent earnings.
- Accumulated super in excess of $1.6 million can be retained in a member’s accumulation account (with earnings taxed at 15%) or moved outside super.