Government changes to super from 1 July 2017

As part of the 2016 Federal Budget and subsequent announcements, the Government is making significant changes to superannuation rules from 1 July 2017.

It’s a good idea to understand the new rules, and how they may affect you and your future financial savings goals.

SUMMARY OF CHANGES & WHAT YOU MAY NEED TO CONSIDER

CHANGE WHAT YOU NEED TO CONSIDER
1. The annual concessional contributions cap reduced to $25,000 p.a.* for everyone. To avoid the payment of additional tax, ensure that the Employer Superannuation Guarantee (SG) and any Salary Sacrifice contributions made into your super do not exceed $25,000 p.a.* for the 2017/18 financial year and onwards.
2. The annual non-concessional (after-tax) contributions cap will be lowered from $180,000 p.a. to $100,000 p.a.* and those with an account balance of more than $1.6m* can no longer make non-concessional contributions. If your account balance is under $1.6m*, ensure that any after-tax contributions you make into your account do not exceed $100,000 p.a.* for the 2017/18 financial year and onwards~.
And if your account balance is greater than $1.6m, you will not be able to make any after-tax contributions.
3. If you are under age 75#, and you choose to make non-concessional (after-tax) contributions, then you will be able to claim a tax deduction on those contributions. You will be able to claim a tax deduction by notifying the Fund. These contributions will count towards your annual concessional contributions cap (see point 1).
4. There will be a $1.6m* cap on the total amount of accumulated superannuation you can transfer into or hold in a tax-free retirement income stream product. If you hold more than $1.6m* in a tax-free retirement income product, then you must either transfer the excess amount back into a superannuation accumulation account or withdraw it as a lump sum.
5. You will receive a Low Income Superannuation Tax Offset of up to $500 if your taxable income is up to $37,000 p.a.* and concessional contributions are made into your account. Submit a tax return. The offset will be applied to your account by GuildSuper following advice from the Australian Taxation Office (ATO).
6. The Spouse Superannuation Tax Offset will be expanded by raising the income threshold for the spouse to $40,000 p.a.* Submit a tax return. The offset will be provided through the ATO.
7. Earnings on assets in Transition To Retirement (TTR) income streams will be taxed at 15%. We will communicate your options to you in early 2017.
8. Tax deduction available to super funds that pay an ‘anti-detriment payment’ as part of a death benefit to eligible beneficiaries will be removed. The anti-detriment payment will continue under certain circumstances. Read below for further information.
9. Departing Australia Superannuation Tax (DASP) will increase to 65% on the entire benefit. If you are in Australia on a specific Visa^, you will only receive 35% of your accumulated benefit if you withdraw your super when leaving Australia.
10. Income threshold for 30% tax rate for concessional contributions (Division 293 tax) will reduce from $300,000 p.a. to $250,000 p.a.* Nothing at all. GuildSuper will make the adjustment upon notification from the ATO.

*Amounts may be subject to annual movements in either the Consumer Price Index (CPI) or Average Weekly Ordinary Time Earnings (AWOTE). Refer to the ATO website for further information.

# Subject to satisfying the work test for members aged between ages 65 to 74.

^ Refer to the Department of Immigration and Border Protection website for further information.

~ Subject to transitional arrangements. Refer to the ATO website for further information.

Many of these changes are complex and may have a direct impact on your personal or financial circumstances. We strongly recommend you seek professional financial advice. Contact GuildSuper on 1300 361 477 to speak to a licensed financial adviser.

Personal financial advice will be provided by Mercer Financial Advice (Australia) Pty Ltd ABN 76 153 168 293 AFS Licence No. 411766.



THE CHANGES IN DETAIL

1. CHANGES TO CONCESSIONAL CONTRIBUTIONS

Concessional (or pre-tax) super contributions are the contributions you or your employer makes before paying income tax on them. Concessional contributions are usually taxed at the low rate of 15% (contributions tax) and include:

  • Super Guarantee (SG) contributions that your employer makes
  • Salary sacrifice contributions that you choose to make from your before-tax income, or
  • Personal tax-deductible contributions, for example contributions you make if you are self-employed.

Currently, you can make up to $30,000 p.a. in concessional contributions in a financial year if you were less than 49 years old at 30 June 2016, or $35,000 p.a. if you were older.

From 1 July 2017, the concessional contributions cap will change to $25,000 p.a. for everyone.

2. CHANGES TO NON-CONCESSIONAL CONTRIBUTIONS

Also known as personal after-tax contributions or member contributions, these are contributions you make from income that has already been taxed. They generally include:

  • Contributions from your take-home pay or savings, or
  • Certain contributions made by your spouse on your behalf.

Currently these are capped at $180,000 p.a. If you’re under age 65 (any time during the year), you are able to apply the ‘bring-forward’ rule. This allows you to make up to three years’ worth of non-concessional contributions (currently $540,000) at any point during a three-year period.

From 1 July 2017, the annual cap will be reduced to $100,000. If you are eligible, then you will still be able to apply the bring-forward rule and contribute up to $300,000 at any time during a three-year period.

In addition, you will no longer be able to make any further non-concessional contributions once your total super balance reaches $1.6 million.

3. CLAIMING A TAX DEDUCTION ON NON-CONCESSIONAL CONTRIBUTIONS

Currently, an income tax deduction for personal superannuation contributions is only available to self-employed members who earn less than 10% of their income from salary or wages.

From 1 July 2017, you (subject to satisfying the work test for members aged 65 to 74) will be allowed to claim a tax deduction on non-concessional (after-tax) contributions you make into your super. Amounts contributed, and a deduction claimed, will count towards your concessional contributions cap, and will be subject to 15% contributions tax.

To access the tax deduction, you will need to lodge a notice of your intention to claim the deduction with the fund or retirement savings provider (as is currently the case for those already eligible to claim a deduction for their personal contributions). Generally, this notice will need to be submitted to the fund before you lodge your income tax return. You will be able to choose how much of your contributions you wish to claim a deduction for.

4. $1.6M CAP ON SUPER BALANCE TRANSFER TO RETIREMENT INCOME PRODUCT

There will be a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement income stream product.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account, where earnings will be taxed at the concessional rate of 15%.

Members already in the retirement phase, with balances above $1.6 m, will be required to reduce their retirement balance to $1.6 million by 1 July 2017, by either transferring the excess back into an accumulation superannuation account or withdrawing the excess amount from their income stream product.

Individuals who breach the cap will be subject to a tax on the earnings on the excess amount.

5. LOW INCOME SUPERANNUATION TAX OFFSET (LISTO)

The LISTO is available to super funds based on the tax paid on concessional contributions made on behalf of low income earners. The offset will mean that members with an adjusted taxable income up to $37,000 p.a. will receive a refund into their super account of the tax paid on their concessional superannuation contributions, up to a maximum of $500.

The Australian Taxation Office will determine a member’s eligibility for the LISTO and advise GuildSuper annually.

6. LOW INCOME SPOUSE SUPERANNUATION TAX OFFSET

Access to a tax offset for super contributions paid on behalf of your spouse will be expanded by increasing the income threshold for the low income spouse from $10,800 p.a. to $40,000 p.a.

The offset will continue to be set at 18% of the amount of eligible contributions, capped at $540 per year. The offset will be gradually reduced for income above $37,000 p.a. and will completely phase out at income above $40,000 p.a.

7. TAX ON TRANSITION TO RETIREMENT (TTR) INVESTMENT EARNINGS

The TTR rules allow an individual to access their preserved superannuation monies in the form of an income stream, even if they have not retired or satisfied another condition of release such as reaching age 65 or suffering permanent incapacity. An individual can currently commence a TTR income stream when they reach their preservation age (between 56 and 65 years of age, depending on their date of birth). As with most other types of (immediate) income streams, the fund is currently entitled to a tax exemption on earnings from assets supporting a TTR income stream.

To ensure that access to TTR income streams is primarily for the purpose of substituting work income rather than tax minimisation, the Government will remove the tax exemption for the earnings derived on assets supporting a TTR income stream from 1 July 2017.

Therefore, earnings from assets supporting TTR income streams will be taxed concessionally at 15% (as per accumulation super accounts). This change will apply irrespective of when the transition to retirement income stream commenced.

If you currently hold a TTR Pension, then we will be in touch with you shortly.

In the meantime, we strongly recommend you consult our advice service or a licensed financial adviser to discuss the impact of these legislative changes on your personal situation.

8. ANTI-DETRIMENT PAYMENTS

An anti-detriment payment is an additional payment made to certain beneficiaries of a deceased estate, as part of the death benefit claim. It represents a refund of the 15% contributions tax paid by the deceased member throughout their life.

Anti-detriment payments may still be made in relation to death benefit claims if the member’s death is on or after 1 July 2017. However, any death benefits paid from 1 July 2019 will not include anti-detriment payments, irrespective if the member’s death occurred before 1 July 2017.

9. DEPARTING AUSTRALIA SUPERANNUATION PAYMENT (DASP) TAX TO BE 65%

The DASP tax will increase from 35% to 65% for working holiday makers.

10. INCOME THRESHOLD FOR DIVISION 293 TAX WILL REDUCE TO $250,000

The Division 293 tax is currently charged at 15% of an individual’s taxable concessional contributions above the $300,000 p.a. taxable income threshold, in addition to the normal 15% rate that applies to taxable contributions.

The ‘income’ threshold will reduce from $300,000 p.a. to $250,000 p.a. from 1 July 2017, to improve sustainability and fairness in the superannuation system by limiting the effective tax concessions provided to high income individuals.

WE’RE HERE TO HELP

Many of these changes are complex and may have a direct impact on your personal or financial circumstances. We strongly recommend you seek professional financial advice. Contact GuildSuper on 1300 361 477 to speak to a licensed financial adviser.

This information is of a general nature only and is not intended to be advice. It is important for you to read the Product Disclosure Statement (PDS) before you make a decision about a superannuation product. Personal financial advice will be provided by Mercer Financial Advice (Australia) Pty Ltd ABN 76 153 168 293 AFS Licence No. 411766.