The Government’s reform package of super tax changes announced in the Federal Budget earlier this year have now successfully passed through both houses of Parliament. The super reforms are aimed at improving the fairness, sustainability, flexibility and integrity of the super system.
Most of these measures will be effective by 1 July 2017. If you think you might be impacted by these changes, or would like to find out more, call us on 1300 300 778 (8 am to 8 pm, Monday to Friday).
||Who does it effect?
|Introduction of Low Income Super Tax Offset
||Members earning less than $37,000 per annum
|Changes to non-concessional contributions cap
||Members making more than $100,000 in after tax contributions each year (or more than $300,000 in a single year)
|Changes to concessional contributions cap
||Members making more than $25,000 in before tax contributions each year
|Tax deductibility of personal contributions
||Members whose employers do not offer salary sacrifice and members who are part self-employed
|Changes to offsets for spouse contributions
||Members with spouses earning less than $40,000 per year
|Tax changes to Transition to Retirement provisions
||Members with a Transition to Retirement pension
|$1.6 million maximum transfer into pension
||Members with a pension balance of more than $1.6 million
|Catch up concessional contributions
||Members with super balances under $500,000 who may want to make more than $25,000 in before tax contributions in a year
|Lower threshold for tax on high income earners (Division 293 tax)
||Members with combined income and concessional contributions of more than $250,00 per year
|Removal of anti-detriment payments on death benefits
||Eligible beneficiaries of a REST member who passes away
|Departing Australia super payment (DASP) tax changes
||Working holiday makers who permanently leave Australia
Introduction of the Low Income Super Tax Offset (LISTO)
LISTO will effectively continue the previous government’s Low Income Super Contribution, and will provide a super boost of up to $500 per year for those earning less than $37,000 per annum. This is an important budget measure to increase fairness and equity for low income earners.
Changes to non-concessional contributions cap
The cap on annual non-concessional contributions (for example after-tax or spouse contributions) will reduce to $100,000 (down from $180,000). The current bring-forward rule which allows you to add extra in one year by bringing forward your future cap still remains, which means the maximum non-concessional amount you can add in one year is $300,000. If you contribute this amount in one year, you can make no further non-concessional contributions for the next two financial years. You must be under 65 to utilise this.
In addition, once you have a balance of $1.6 million within superannuation, you will not be allowed to make any non-concessional contributions nor be able to receive the Government co-contribution.
Changes to concessional contributions cap
The maximum amount of concessional contributions (including SG and salary sacrifice contributions) you can make to your super in a financial year will be lowered to $25,000 per financial year from 1 July 2017. Currently, the maximum amount is $30,000 per annum for those under aged 50 or $35,000 per annum for those aged 50 and over.
Tax deductibility of personal contributions
If you’re under the age of 65, or aged 65 to 74 and meet the work test, from 1 July 2017 you’ll be able to make personal contributions to your super and claim a full tax deduction for the contribution. This means you no longer have to enter into a salary sacrifice arrangement with your employer to make additional pre-tax contributions, you can now do it personally through this process. Currently only self-employed or substantially self-employed people can do this.
To claim the tax deduction, you’ll need to make a lump sum contribution to your super account and submit a ‘Notice of Intent to Claim a Tax Deduction’ form. REST will deduct contribution tax, and then you can claim a full tax deduction in your tax return for the amount contributed.
Changes to offsets for spouse contributions
The eligibility for the spouse tax offset has been extended to members whose spouses who earn under $40,000 per year. If your spouse earns under $37,000 per year you will now be eligible for an 18% tax offset of up to $540 on spouse contributions. This is an increase from the existing $10,800 per year threshold. This offset will phase out for spouses earning over $40,000 per year.
Tax changes to Transition to Retirement (TTR)
From 1 July 2017 TTR accounts will no longer attract a tax exemption on investment earnings, irrespective of when the retirement income stream commenced. This means they will be taxed the same as superannuation investment earnings, at a rate of up to 15% per year.
Also, from 1 July 2017 income payments from pension accounts will be treated as pension income stream payments and will be taxed at your marginal tax rate less 15% if you’re aged between 55 and 60.
These measures are designed to ensure that TTR accounts are used primarily to help those transitioning to retirement.
$1.6 million maximum transfer into pension
There will now be a $1.6 million cap on the total amount of superannuation savings that can be transferred into a pension, effective from 1 July 2017.
For retirees with pension balances greater than $1.6 million this will mean you will need to transfer the excess back into a superannuation account or withdraw the excess amount from your pension by 30 June 2017.
Catch-up concessional contributions
From 1 July 2018, if you have a balance of under $500,000 the government will allow you to make ‘catch up’ contributions by carrying forward any unused concessional cap. You can access your unused cap on a rolling basis for a five year period. This works similar to rolling over unused data on a mobile phone plan, and the intention of this change is to provide flexibility for people with broken work patterns to add extra at the time they can afford to.
Lower threshold for Division 293 tax
If you have combined income and concessional superannuation contributions of more than $250,000 each financial year you may now have to pay 30% (as opposed to 15%) tax on your concessional contributions. If your salary and wages alone take you over the threshold, the additional tax is on the whole amount of the contributions otherwise it is only on the portion of your concessional contributions that take you over the threshold. This will also apply to defined benefit fund members.
Removal of anti-detriment payments for death benefits
Currently, if a REST member dies and their eligible beneficiary receives a lump sum death payment from REST, the beneficiary will receive a refund of contributions tax paid by the member on their super contributions during their lifetime. This is known as an anti-detriment payment. This provision will be removed for anyone who passes away from 30 June 2017.
Departing Australia super payment (DASP) tax changes
The rate of tax on DASPs, which allow working holiday makers to withdraw their super balances when they permanently leave Australia, will increase to 95% (up from 38%). This change is intended to fund a reduction in the tax rate on income earnt outside of super.
Advice when you need it
REST Advice is all about helping you make good decisions with your super and money. Whether you have simple general questions, you’re looking for calculators to help you plan, or you’re interested in more complex subjects like transition to retirement, we can help you confidently look forward to a brighter tomorrow.
And, our price promise means that we won’t charge you any extra
super questions. More complex retirement advice will be capped at $395, which you can pay for out of your super. Comprehensive face-to-face financial planning will cost more, but we’ll always talk to you about this first.
To find out more about how REST Advice can help you create a brighter future, visit rest.com.au/advice
or call us on 1300 300 778.
We’re here to help
If you’d like further information on any aspect of your REST account, please call our customer service team on 1300 300 778
or contact us online at rest.com.au