Key things to know about new superannuation legislation
SUPERANNUATION (OBJECTIVE) BILL 2016
This Bill has come about to try and define the purpose of the superannuation system in Australia and as a result the government is legislating a definition of this objective which is:
The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.
TREASURY LAWS AMENDMENT (FAIR AND SUSTAINABLE SUPERANNUATION) BILL 2016 & SUPERANNUATION (EXCESS TRANSFER BALANCE TAX) IMPOSITION BILL 2016
These two Bills are the government looking to legislate the final version of the proposed superannuation changes that come about in the 2016 May budget.
Since budget night we have seen the abandonment of the proposed $500,000 lifetime limit on non-concessional contributions to superannuation.
The government has also scraped its proposal to remove the work test requirement for Australians aged between 65 to 75 before they qualify to make contributions to superannuation.
The changes now going through the House of Representatives which are expected to be passed include:
1. A $1.6 million pension transfer cap which will limit how much of a person’s superannuation entitlements can be in pension mode from 1 July 2017. Note there are some special rules around non-commutable pensions like market linked and defined benefit pensions.
2. Removal of tax exemptions on earnings in superannuation funds that support Transition to Retirement Income Streams (TRIS) from 1 July 2017.
3. Removal of the ability for an SMSF or Small APRA fund to utilise segregation for tax purposes when the fund has members with balances over $1.6 million from 1 July 2017.
4. Reduce the concessional contributions limits from 1 July 2017 to be $25,000 for all (which is a reduction from the current limits of $30,000 for under 50 year olds and $35,000 for over 50 year olds).
5. Remove the ability for superannuation funds to claim an anti-detriment tax deduction from 1 July 2017. This relates to a tax deduction that a fund could claim on the payment of a death benefit. This was an increased benefit payment comprising of a refund of the historical contributions taxes paid by the deceased member.
6. Removal of the ability for some types of benefit payments paid from superannuation fund income streams to be classified as lump sum payments for tax purposes.
7. An allowance to rest cost bases of assets from date of the Bill being passed up until 1 July 2017 for assets in superannuation funds that are being forced to wind back pensions to accumulation mode by 1 July 2017 due to having more than $1.6 million in pension already.
8. Allowing all people from 1 July 2017 to claim a personal tax deduction for contributions made to superannuation (assuming certain criteria are met). This is achieved by the removal of the requirement for an individual to need to have less than 10% of their taxable income from employment to qualify to make a personal tax deductable superannuation contribution which is the current rule.
9. Reduction to the high income earners income levels from $300,000 to $250,000 at which point an additional 15% contributions tax (s293 tax) is imposed on all contributions above this income limit (effectively imposing a 30% tax rate on contributions to superannuation that exceed this limit).
10. Introducing a limit on non-concessional contributions from 1 July 2017 which will disallow a person with superannuation entitlements of $1.6 million from making further non-concessional contributions to their superannuation account.
11. Introduce the ability from 1 July 2018 for people to accumulate unused concessional contribution limits for up to a 5 year period and make catch up contributions of the unused balance.
12. A reduction in the non-concessional contributions limits from 1 July 2017 from the current $180,000 p.a. to $100,000 p.a. With further modifications to the ability for a person under 65 to trigger a ‘bring forward’ event where they can use up to three years of the cap i.e. currently $540,000 or from 1 July 2017 $300,000 in the one year.
13. Reinstate the current Low Income Superannuation Contribution (LISC) which expires 1 July 2017 with a similar Low Income Superannuation Tax Offset which will take effect from 1 July 2017. This will result in a refund of the contributions tax to individuals who earn less than $37,000 in taxable income. This will be limited to $500 and is paid to the individual’s superannuation fund by the ATO.
14. Increase to the limit on a spouse’s assessable income from 1 July 2017 from the current $13,800 to $40,000. This allows a tax offset to be claimed by an individual for spouse contributions they make. The maximum tax offset is unchanged from a maximum tax offset of $540.
There are additional changes and details in the mentioned changes that are not covered but this is just a high level summary as there is a lot of complications around the accounting and reporting involved for some of these changes.
You should seek further advice before taking any action relating to items covered by this summary, as this article is general in nature and does not consider your specific circumstances or the tax consequences.
If you wish to discuss your own superannuation or SMSF strategies, contact the specialist PKF Superannuation team on (02) 4962 2688 for Newcastle or Sydney
SMSF – Self Managed Superannuation Fund
Concessional contributions – These are generally contributions made to a superannuation fund ‘before tax’ and they include employer superannuation guarantee contributions, contributions made under a legitimate salary sacrifice arrangement and an individual’s personal contributions which they qualify to claim a personal tax deduction on.
Non-Concessional contributions – These are generally contributions made to a superannuation fund from ‘after tax’ wealth by an individual. Usually comprising of personal savings, wealth realised from the sale of a private asset, sale of an investment or inheritance. This wealth has been taxed once already and is not taxed when it is contributed to the superannuation fund.
Work test – A requirement for individuals wishing to contribute to their superannuation fund aged between 65 to 75 to have worked in gainful employment for at least 40 hours in a 30 day consecutive period in the financial year prior to making any contribution.
Preserved benefits – superannuation entitlements which cannot be cashed out until a condition of release is met. This condition of release is generally retirement after reaching preservation age, reaching age 65 and death or TPD events.
Unrestricted non-preserved benefits - superannuation entitlements which cannot be cashed out at any time.
Tax free member entitlements – This is a person’s superannuation benefit which when paid to the individual as a pension or lump sum will not be taxable as taxable income in their personal name as income. This is because it generally comprises of historical non-concessional contributions to superannuation funds. In addition when these benefits are paid as death benefits to the estate or family members it is also not taxable income when received.
Taxable member entitlements - This is a person’s superannuation benefit which when paid to the individual as a pension or lump sum may be taxable as taxable income in their personal name if they are under age 60 as income. This is because it generally comprises of historical concessional contributions to superannuation funds along with the accumulated earnings in the superannuation fund. In addition when these benefits are paid as death benefits to the estate or non-dependant adult children members it can again be taxable income when received by them.
For more information on these changes, click here to contact a superannuation specialist