Federal Budget 2016: You and Your Super

SUPERANNUATION, yes, it's still tax free. However, it comes with changes in that if you have more than $1.6m in superannuation at retirement, the amount over those earnings (not the withdrawals) will not be tax free from July 2017.

Not all bad news, as the bits above $1.6m still receive low concessional tax rates (10 or 15%). And, in most cases, it is far better than being taxed outside of superannuation.


Change of Plan

Changes to transition to retirement (July 2017) that may require a rethink for those aged between 60-65.

But, let us not get too excited just yet, as there is another budget to come before these changes are enacted. And, an election with a senate makeup that none of us will be sure of for quite a while yet.

What it means is that over the next year, a review of our superannuation strategies would be prudent.

The biggest surprise of the night came with capping after tax payments into superannuation at a lifetime maximum of $500,000 and backdated to 2007.

We cannot believe this will come in without a watering down, as it effects many people that superannuation is there to support.

Nip and Tucks: Let's wait until we see the devil in the details as they fully emerge over the next few months.

The key points below are summarised, courtesy of Host Plus.

Federal Treasurer, the Hon. Scott Morrison, MP presented his first Budget to the Federal Parliament. Many of the items announced had already been reported in the media in recent weeks, with much speculation about what would be included.

The major changes to superannuation announced that may impact you include:

Superannuation and Retirees

  1. Increased tax on super contributions for high income earners: Currently, when personal income exceeds $300,000, the tax payable on any superannuation contributions increases from the standard concessional tax rate of 15% to 30%. The government has now proposed to decrease this income threshold from $300,000 to $250,000 per year from 1 July, 2017.
  2. Contributions caps: Currently, the annual cap on concessional (before-tax) contributions is $30,000 for under-50s and $35,000 for those aged 50-plus. But, these will both decrease to $25,000 per year effective 1 July, 2017. These concessional contributions are generally superannuation guarantee (SG) contributions and salary sacrifice.
  3. Current legislation allows for non-concessional (after-tax) contributions of $180,000, or $540,000 every three years for people under aged 65. These contributions are usually voluntary and became effective 3 May, 2016. They will also be subject to a lifetime cap of $500,000, taking into account all non-concessional contributions made since 1 July, 2007.
  4. Catch up contributions for individuals who have time out of the workforce: From July 1, 2017, the Government will allow individuals to make catch-up concessional super contributions for those with balances under $500,000. This measure is to allow people with lower contributions, interrupted work patterns, or irregular capacity to make contributions to make catch up payments to their superannuation.
  5. Low income superannuation tax offset: A new scheme will be introduced that provides a tax offset of up to $500 p.a. on concessional superannuation contributions for individuals earning less than $37,000 per year, effective 1 July, 2017.
  6. Transfer of superannuation into retirement phase: From July 1, 2017, a cap of $1.6 million will be placed on the transfer of superannuation balances into the tax-free retirement phase (pension accounts). Any existing Pension accounts with balances beyond $1.6 million will have to be transferred into accumulation accounts and will be subject to up to 15% tax.
  7. Extended ability to make contributions: From 1 July, 2017 the Government is extending the ability for all individuals aged between 65-74 to make concessional tax contributions to their superannuation, and to make or receive payments from their spouse, without having to meet the current work test criteria.
  8. The tax offset for spouse contributions where the spouse income was previously less than $10,800 has now increased to $37,000 per year effective 1 July, 2017.
  9. Easing of restrictions on tax deductibility of personal super contributions: From 1 July, 2017 the Government will allow individuals, regardless of employment status, to make concessional super contributions up to the concessional cap (subject to 15% contribution tax). Individuals can claim a personal income tax deduction for personal super contributions.
  10. Transition to Retirement (TTR) Accounts: The existing tax exemption on investment earnings for supporting TTR income streams will be removed from 1 July, 2017. This means members with a TTR account will now have their investment earnings subjected to 15% tax.
  11. Anti-detriment death benefit provisions: From 1 July, 2017 'Anti-detriment' payments previously made as part of the death claim process to beneficiaries of a deceased member from superannuation will be removed. These payments were the result of any contribution tax paid from a member's account over their lifetime.

Bottom Line: These changes may impact you significantly. So, it's worthwhile carefully digesting the information above. And if you do have any questions about these matters (or your superannuation in general), please contact us and one of our team will be more than happy to assist you.

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