Changes to Superannuation Caps, Contributions & Offsets
The Australian Governments superannuation reform package includes many important changes that come into effect on 1 July in 2017. Here’s a quick review of some the key measures that can require further consideration by employees, Human Resource(HR) leaders and payroll teams.
1.6 billion transfer balance cap
The transfer balance cap of $1.6million will apply to the amount of money that a member of a fund can transfer from their accumulation balance to the tax-free pension or retirement balance.
Any accumulation balance over and above $1.6million can remain in an accumulation account or outside of superannuation.
It should be noted however that once the $1.6million has been transferred in retirement phase that there is no cap on the subsequent earnings on that balance.
A six month transition period will be afforded to people who are already retired and with balances below $1.7million as at 30 June 2017, allowing them to bring their retirement balance below the $1.6million cap and avoid being penalised.
This cap will be indexed in line with CPI going forward.
High income earners and concessional caps
The income threshold for determining whether an individual is a high income earner has been reduced from $300,000 to $250,000 – those affected will pay the additional 15%tax on superannuation, making their effective tax rate 30%.
In addition, the concessional (or before-tax) superannuation contributions cap has been reduced to $25,000 for all individuals – replacing the $30,000 cap for individuals under the age of 49, and $35,000 cap for individuals 49 years and over.
Both measures are effective from 1 July 2017. If you have a salary sacrifice arrangement in place to contribute additional pre-tax superannuation, you may now like to review your arrangements in light of the new caps.
The non-concessional (or after-tax) cap will be revised to $100,000 from 1 July 2017. This revised cap will work in conjunction with the non-concessional contributions restrictions placed on individuals who have a balance of $1.6million or more.
Individuals under the age of 65 can still apply the bring-forward rule (i.e. enabling them to bring three years of cap forward) as long as the aforementioned restrictions are not breached.
Broadening the eligibility for deductions of personal contributions
From 1 July 2017, all individuals under the age of 74 who meet the work test; will be allowed to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap.
This means more individuals will be able to claim a deduction as the current law is quite prohibitive and only available to those who earn less than 10% of their income from salary or wages. The Government estimates that approximately 800,000 working Australians will benefit from this measure.
Catch-up concessional contributions
Individuals with a superannuation balance of less than $500,000 will be able to make catch-up contributions for a previous year (for up to 5 years) where there was unused cap left, effective from 1 July 2018.
For example: Samantha has a superannuation balance of $200,000, but did not make any concessional superannuation contributions for the 2018-19 financial year as she took time off to care for her child. In 2019-20, she has the ability to contribute $50,000 in concessional contributions into superannuation. This being $25,000 under the annual concessional contributions cap and $25,000 from her unused 2018-19 cap which she has carried forward.
Introduction of the Low Income Superannuation Tax Offset (LISTO)
From 1 July 2017, the new Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution (LISC).
Under LISTO, individuals with a taxable income of up to $37,000 will receive refunds of the tax they pay on superannuation contributions (up to $500).
Superannuation spouse tax offset
The eligibility for the spouse tax offset will be extended to those whose recipient spouses earn up to $40,000.
Spouse must be under the age of 70 and meet the work test, if they are between 65 to 69 years old.
An additional 5,000 families are expected to make use of this opportunity.
Written by: Angela Lehmann, ADP, Legislative Manager